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Just found out where DH's IRA is
Old 05-03-2013, 04:17 AM   #1
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Just found out where DH's IRA is

Through all of our discussions about retirement, funds, and making plans, DH told me many times that he had a very small IRA. I asked for the paperwork a couple of times, but we both kept forgetting to look for it. This week, DH comes into my office proudly holding out a sheaf of papers. His IRA!

It's an annuity.

My first reaction is to roll it over into Vanguard, but am I having a knee jerk reaction? It's a very small amount and I haven't called to get the full details yet. What questions should I ask? It's an America's Vision Plus annuity if that helps.

I admit I know very little about annuities. It's one of those topics that makes my eyes glaze over...... Any advice is MUCH appreciated!
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Old 05-03-2013, 06:30 AM   #2
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Look for back end surrender charges. If you are still subject to back end surrender charges, leave it alone. Most have about a 6 year period. Look for whether it was post-tax money as that is his basis. If he has little gain, you can pull it out without tax consequences. You still may be hit with back end surrender... Look for annual mortality charge. Compare this with Vanguard annuities, if that is what you want to roll it over to. The higher the mortality charge, the worse the annuity.
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Old 05-03-2013, 06:36 AM   #3
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If he has had it a long time, it might not be to bad. Most annuities have minimum guaranteed rates and some of the older ones are 3% which seemed really low when the products were designed and is looking pretty good today given the credit risk of insurers. Look at the IRR of the account value over the last couple years before jettisoning.
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Old 05-03-2013, 08:53 AM   #4
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If it has an annual fee then move it immediately.
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Old 05-03-2013, 09:41 AM   #5
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Having a deferred annuity in the accumulation phase is generally a bad idea because they are expensive, restrictive and you don't need the added layer of tax deferral inside an already tax deferred retirement account. The only exception is if you have a deferred annuity with TIAA-CREF as they don't have surrender charges and the fees are as low as many index funds. So I'd see if you can do a 1035 annuity exchange to TIAA-CREF. You won't get the supper low fees they offer to people in their institutional retirement plans, but I bet it will be less expensive that the current annuity.
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Old 05-03-2013, 09:57 AM   #6
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Sounds like an old Nationwide Best of America annuity. Most of those had 5 year surrenders for money put in. Maybe he can call the 800 number at Nationwide and ask if the surrender is gone and what the interest rate is on their MM fund. Some of those older ones have a high floor like 3% so good to know.

Move the IRA to VG or Fidelity. They should be able to hold the annuity. I would not 1035 to a new annuity, lower your costs and just put it in mutual funds. It is in an IRA already so tax deferred........
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Old 05-03-2013, 10:29 AM   #7
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Sounds like an old Nationwide Best of America annuity. Most of those had 5 year surrenders for money put in. Maybe he can call the 800 number at Nationwide and ask if the surrender is gone and what the interest rate is on their MM fund. Some of those older ones have a high floor like 3% so good to know.

Move the IRA to VG or Fidelity. They should be able to hold the annuity. I would not 1035 to a new annuity, lower your costs and just put it in mutual funds. It is in an IRA already so tax deferred........
I'm a bit confused. How do you roll the annuity over to Vanguard or Fidelity.
Would you have a Vanguard IRA that then held the original Nationwide annuity? How do you get out of the annuity and into mutual funds?
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Old 05-03-2013, 10:39 AM   #8
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FinanceDude, that is exactly what it is. He's had it since the '90s, maybe even longer. I don't see an initial purchase/investment date on his paperwork. Everything is at home, so I'll have to review it after work and BEFORE the glass of wine tonight.

Would Vanguard actually hold the annuity or couldn't I roll it into a mutual fund IRA? Is it locked into an annuity now that the funds are there? Sorry for the not-so-smart questions, but I did warn you that these are not investment vehicles I understand! lol
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Old 05-03-2013, 11:58 AM   #9
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Just have your DH open an IRA at Vanguard if he already does not have one. Instruct Vanguard to rollover the maximum amount without incurring a surrender charge (chances there will be no surrender charge). He will get a 1099-R for the distribution from Nationwide, and probably a 5498 to document the rollover to the qualified plan at Vanguard. Keep these documents for tax time.

This is very easy to do, although it may take a little time.
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Old 05-03-2013, 12:07 PM   #10
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If he has had it a long time, it might not be to bad. Most annuities have minimum guaranteed rates and some of the older ones are 3% which seemed really low when the products were designed and is looking pretty good today given the credit risk of insurers.
I switched my 89 yr old mother's annuity to their 3% fixed rate last month.
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Old 05-03-2013, 12:52 PM   #11
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Just have your DH open an IRA at Vanguard if he already does not have one. Instruct Vanguard to rollover the maximum amount without incurring a surrender charge (chances there will be no surrender charge). He will get a 1099-R for the distribution from Nationwide, and probably a 5498 to document the rollover to the qualified plan at Vanguard. Keep these documents for tax time.

This is very easy to do, although it may take a little time.
So you're saying you can rollover the IRA annuity to a Vanguard IRA just like you'd rollover a 401k. Isn't there any issue with closing the annuity and putting it into mutual funds?

EDIT:
Ahh I just did a Google and found that if the annuity is in an IRA you just cancel the annuity contract, pay any surrender charges and dump the cash in a MM and then roll the cash over to a Vanguard IRA.
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Old 05-03-2013, 01:47 PM   #12
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So you're saying you can rollover the IRA annuity to a Vanguard IRA just like you'd rollover a 401k. Isn't there any issue with closing the annuity and putting it into mutual funds?

EDIT:
Ahh I just did a Google and found that if the annuity is in an IRA you just cancel the annuity contract, pay any surrender charges and dump the cash in a MM and then roll the cash over to a Vanguard IRA.
The existing IRA is already an IRA. It just happens to contain an annuity. Cash out of the annuity (to the extent possible without a surrender charge, or if the surrender charge is small enough or zero, cash out the whole thing). Now there is an IRA with cash (MM) in it. A trustee to trustee transfer gets the cash into any other IRA of the OP's choice.
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Old 05-03-2013, 02:24 PM   #13
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The existing IRA is already an IRA. It just happens to contain an annuity. Cash out of the annuity (to the extent possible without a surrender charge, or if the surrender charge is small enough or zero, cash out the whole thing). Now there is an IRA with cash (MM) in it. A trustee to trustee transfer gets the cash into any other IRA of the OP's choice.
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Old 05-03-2013, 04:30 PM   #14
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There seems to be a rush to judgement to get out of the annuity. While that may well be the right decision, you won't know for sure until you find out more about this contract, whether it is past the surrender charge period, what its recent investment performance has been and what option are available. Once you have that information you can make an informed decision as to the best course going forward.

While I'm not a big fan of annuities, I'm also not a fan of knee-jerk responses.
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Old 05-03-2013, 04:44 PM   #15
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Well, he opened the annuity in 1994, so we're probably past any surrender fees. Only 9% of the annuity is in a fixed fund, which pays 3% interest. The rest of it is split between 11 different funds. I have a headache already.....

I will have him call on Monday to get me the prospectus, verify that he's beyond any surrender charges, and see if they will give me permission to work with them directly to understand this.

Thanks for all the help!
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Old 05-03-2013, 06:36 PM   #16
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Only 9% of the annuity is in a fixed fund, which pays 3% interest. The rest of it is split between 11 different funds.
Sounds like a VA but the transfer of funds to VG should still work as others have discussed.
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Old 05-03-2013, 07:02 PM   #17
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Well, he opened the annuity in 1994, so we're probably past any surrender fees. Only 9% of the annuity is in a fixed fund, which pays 3% interest. The rest of it is split between 11 different funds. I have a headache already.....

I will have him call on Monday to get me the prospectus, verify that he's beyond any surrender charges, and see if they will give me permission to work with them directly to understand this.

Thanks for all the help!
I looked at the fees charged on an annuity by nationwide and I think you'll find they are high...see p9 and p10

https://ssc.nwservicecenter.com/pros...prs_Vision.pdf
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Old 05-03-2013, 07:06 PM   #18
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There seems to be a rush to judgement to get out of the annuity. While that may well be the right decision, you won't know for sure until you find out more about this contract, whether it is past the surrender charge period, what its recent investment performance has been and what option are available. Once you have that information you can make an informed decision as to the best course going forward.

While I'm not a big fan of annuities, I'm also not a fan of knee-jerk responses.
This is a good point. I was just trying to contribute to the "how" to get out. The "whether" to get out is a different item.
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Old 05-03-2013, 07:23 PM   #19
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Be sure to ask questions or read the contract to find out about any riders to his annuity. An annuity sold in 1994 might have a lifetime income rider that could have very good terms. Interest rates were much higher back then. I do not like annuities but some end up being not completely terrible.
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Old 05-03-2013, 08:59 PM   #20
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Be sure to ask questions or read the contract to find out about any riders to his annuity. An annuity sold in 1994 might have a lifetime income rider that could have very good terms. Interest rates were much higher back then. I do not like annuities but some end up being not completely terrible.
This is true, you need to look at the numbers. I have an old TIAA annuity with contributions made in the 80s and early 90s that is currently earning 4.5%. Back in the day it earned 10%.....and my annuity payout will be calculated using an interest rate of 7.5%....so I'm leaving it alone!
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