What to do with annuity?

[bclover]

Hey guys,
I inherited an annuity when the wonderful "old guy" passed away and it's fast approaching the "get out of jail without a penalty" date.

Here are the particulars.
AXA variable annuity
current value 504K
initial premium paid 400K
annual fees 3.35%
Death benefit-standard?
living benefit value 511K
payout amount available based on benefit amount 20,456.00 (I think this is what I would get annually if Iturned it on)
lifetime payouts
No adjustment for inflation

I definitely want to move it because of the fees.
What should I be concerned with?? and suggestions on where to move the funds.

 

[Dash man]

Be sure you understand any tax consequences and termination fees for moving the annuity.

 

[pb4uski]

Taxable account or tax-deferred?

How does $20,456 annually compare to the benefit from a SPIA with a $504k premium or a premium for the surrender value? What is the surrender value?

 

[bclover]

Taxable account or tax-deferred?

How does $20,456 annually compare to the benefit from a SPIA with a $504k premium or a premium for the surrender value? What is the surrender value?

surrender value is 499458.00. accumulated gains to date 99000.00

Tax status, says non qualified which I'm assuming means taxable account.

What is a SPIA? (lol, going to google)

 

[OldShooter]

I had a friend who had been sold some Eddy Jones ripoff annuities. He went to Schwab and the rep was very knowledgeable about annuities and all the little tricks of the trade in getting out of them. I don't know if he just got lucky or if all the "VP" level Schwab reps have this expertise. With $500K any brokerage house will be very anxious to help you or to find someone in their shop to help. Probably you'd find the same at Fido. Or maybe talk to both if you do not know where you're going to put the money.

You ask about where to put it. if you are looking for a brokerage house recommendation, I think many here are happy at Fido, Schwab, or Vanguard. Start by interviewing some brokers --- start with the branch manager. Tell him/her about your situation and also the type of person you prefer to work with. Ask to get set up to see a couple of his/her recommended people. (Clue: experienced through one or two downturns, already with a good book of business and good referral sales. NOT the kid needing to build his book and the one they give the walk-ins to.)

I'd also get a PDF copy of the prospectus and do a keyword search for the word "fee." They will probably charge you a fee to cash out, too.

 

[bclover]

I know that in the grand scheme of things I have a lot to be grateful for (so everyone is allowed to slap me with a virtual wet noodle) especially since I do know folks who lost a spouse only to find out that they did not have their financial ducks in a row but....

I dislike that I have this thing and I'm responsible for it. I didn't even know what a SPIA was?

(sorry I'm a whiny witch today)

 

[OldShooter]

... I dislike that I have this thing and I'm responsible for it. ...

Nothing wrong with that. IMO it does, though, make it doubly important that you find a good broker. "Good" starts with the broker showing you in writing that he/she is in a fiduciary relationship with you. i.e., he/she is legally obligated to put your interests ahead of his/hers.

The rest of "good" comes from your interviewing people until you find the right one. DO NOT take the first warm body that someone schedules you with. Figure out what you want, possibly including one of the female persuasion, and interview like you're getting married.

 

[RobbieB]

Looks like they charge you 1% to surrender.

Hey, you have a half mil more than before to invest as you like.

 

[jazz4cash]

So, would a step-up in basis apply to this beast? Just curious. I think non qualified means principal is not taxed. Good problem to have.

 

[Oakster]

Call J.G Wentworth 877-Cash Now

 

[HI Bill]

With annual fees of 3.35%, I'd consider selling, unless you're very close to the age where you'll begin payments. Inflation plus fees will kill you over the long term. Of course, it also depends on your tax situation. Seek some professional advice outside the firm who holds it...maybe from a CPA and/or a tax person.

 

[RobbieB]

The basis should be the value when she inherited.

 

[bclover]

Call J.G Wentworth 877-Cash Now

Lol I thought they were for settlements [emoji2] [emoji2]

 

[Kelor]

This thread is a perfect example of why you shouldn't take advice from a forum.
1) If you are the beneficiary, surrender penalties are waived. There's so many other things you need pointed out
2) Other than the death benefit, the other benefits are likely gone, and the cost of additional riders are likely eliminated at death.
3) You can do things like non-qualified stretch.
4) You sound like the type of person that should be asking a professional for advice, not a forum.

 

[GalaxyBoy]

I inherited a variable annuity last year from dear old Dad. The broker should spell out your options for you, but do your own research. For example (this is by no means a complete list of references):

https://www.bogleheads.org/wiki/Variable_annuity
https://www.investopedia.com/ask/answers/09/inherited-annuity-distribution.asp
https://www.immediateannuities.com/taxation-of-annuities/

The rules are different for a spouse vs. non-spouse. I think a spouse can assume the annuity as their own, but I'm not sure what all their options are as that didn't apply to me.

As a non-spouse I had the choice to either annuitize it immediately, roll it over into another annuity (which the broker wanted me to do with another annuity company), or take the money out over a period of not more than five years. I chose the latter.

With my annuity there was no step-up in basis upon death as in other types of investments, and the gains (but not the principal) are taxed as ordinary income. I chose to take the amount of the gain divided by 5 each year for the next 5 years in order to minimize the tax hit, plus I'll take out all the principal (already-taxed money) in year 5. I parked the money still in the annuity in the only available index fund which has an expense ratio of 0.28%. The broker actually remarked to me that was a really low ER, wasn't it? One of the lowest he's ever seen!

If you're not comfortable doing research on your own I'd suggest getting professional help (financial advice, that is!).

Good luck!

 

[RobbieB]

Yup. Free advice is worth what you paid for it -

 

[bclover]

This thread is a perfect example of why you shouldn't take advice from a forum.
1) If you are the beneficiary, surrender penalties are waived. There's so many other things you need pointed out
2) Other than the death benefit, the other benefits are likely gone, and the cost of additional riders are likely eliminated at death.
3) You can do things like non-qualified stretch.
4) You sound like the type of person that should be asking a professional for advice, not a forum.

Lol. Easy killer easy. There are really great advantages to asking on a forum.

#1. Experience is often the best advice. Good probability of someone having the same situation.

#2. Sometimes you don't know what you don't know.

#3. It's not an either/or situation. Yes I have every intention of interviewing a professional but getting opinions from a cross section of people who have no vested interest other than passing on what they know can't hurt.

#4 lol I thought most folks here did not like FA?? For pretty much the same reason i want to get rid of the annuity, high fees

#5 Tell me again why ER forum exists?? Silly me, I thought it was exactly to exchange ideas, experiences and information. [emoji57]

 

[Hermit]

... As a non-spouse I had the choice to either annuitize it immediately, roll it over into another annuity (which the broker wanted me to do with another annuity company), or take the money out over a period of not more than five years. I chose the latter....

Ah, yes. Professional advice in the financial sector. Maybe free advice from a forum isn't such a bad place to start.

 

[Jerry1]

Exactly. Item number 2 (you don’t know what you don’t know) being one of the most important to me. This forum is a great place to start on a number of theses types of issues. I’m thankful to have had this groups’ support as I’ve worked through a number of financial issues related to retire. SS and ROTH conversations to name a few.

 

[Kelor]

Excellent point. I’m a bit grumpy tonight ��. . My apologies.

 

[Sunset]

I inherited a variable annuity last year from dear old Dad. The broker should spell out your options for you, but do your own research. For example (this is by no means a complete list of references):

https://www.bogleheads.org/wiki/Variable_annuity
https://www.investopedia.com/ask/answers/09/inherited-annuity-distribution.asp
https://www.immediateannuities.com/taxation-of-annuities/

The rules are different for a spouse vs. non-spouse. I think a spouse can assume the annuity as their own, but I'm not sure what all their options are as that didn't apply to me.

As a non-spouse I had the choice to either annuitize it immediately, roll it over into another annuity (which the broker wanted me to do with another annuity company), or take the money out over a period of not more than five years. I chose the latter.

With my annuity there was no step-up in basis upon death as in other types of investments, and the gains (but not the principal) are taxed as ordinary income. I chose to take the amount of the gain divided by 5 each year for the next 5 years in order to minimize the tax hit, plus I'll take out all the principal (already-taxed money) in year 5. I parked the money still in the annuity in the only available index fund which has an expense ratio of 0.28%. The broker actually remarked to me that was a really low ER, wasn't it? One of the lowest he's ever seen!

If you're not comfortable doing research on your own I'd suggest getting professional help (financial advice, that is!).

Good luck!

Why would you not take out the principal portion of money over the 5 years (if not in first year) instead of waiting 5 years to get it ?

 

[dadu007]

As a non-spouse I had the choice to either annuitize it immediately, roll it over into another annuity (which the broker wanted me to do with another annuity company), or take the money out over a period of not more than five years. I chose the latter.



With my annuity there was no step-up in basis upon death as in other types of investments, and the gains (but not the principal) are taxed as ordinary income. I chose to take the amount of the gain divided by 5 each year for the next 5 years in order to minimize the tax hit, plus I'll take out all the principal (already-taxed money) in year 5.

Yep, the wife inherited an annuity (non-spouse) and chose the 5-year withdrawal; spreading the withdrawals for the gains over 5 years, along with the principal in the fifth and final year, when the account will be closed. It was around $250,000 ($181,000 principal) when she took possession. She has withdrawn $43,000 over the first two years (withdrawals calculated by dividing the gains at the moment by the number of years left; two withdrawals, $18,000 and $25,000, all taxed as regular income; the principal will not be taxed, gains are always withdrawn FIRST); the account has still kept growing (balanced fund) and is currently worth $227,000. Stock market gains!

 

[FREE866]

annual feels of over 3%?? ugh..thats just criminal...get out asap....whatever your goals are you can achieve much simpler and cheaper...

 

[dadu007]

Why would you not take out the principal portion of money over the 5 years (if not in first year) instead of waiting 5 years to get it ?

Because gains are automatically withdrawn first; i.e., you don't have a choice to ask for a portion of gains and a portion of principal to be withdrawn; all gains are withdrawn FIRST until only the original principal is left (which is not taxable). So you want to spread out the withdrawal of gains over 5 years to (typically) spread the tax burden over those 5 years. (If you're still working and are withdrawing the money, this spread and tax burden matters a LOT.)

 

[pb4uski]

Yes, any withdrawals are taxable to the extend of built-up gains, then principal... so you want to spread out the taxable gains and then once those are gone the entire principal can be without any tax consequences.