Need advice on Roth IRA...

[jhyb]

I have a Roth IRA policy with New York Life since '04 and I've contributed close to $15,000. I checked my statement recently and the ending value was $11,000. Should I stop my contribution or keep on going? Is the $4,000 completely gone and I'll never see it again? Any assistance will be great, thanks.

 

[Texarkandy]

Welcome to "the crash" -

I received the annual statement this week on some monies we had with Vanguard that we had kind of forgotten about. (83 shares of VIGRX)

Balance on 12/31/2007 = 2779.49
Balance on 12/31/2008 = 1701.44

Thank goodness the bulk of my financial assets didn't suffer the same fate & I sincerely feel for those for whom it did.

But to answer your question: I'm not quite as financially savvy as some others on here (who will no doubt be weighing in shortly) but at this particular point in time your 4k is "completely gone" and you'll "never see it again" only if you sell. (that's called "locking in your loss"). If you leave it alone the share price may perhaps come back someday & the principal will return.

So you will have to ask yourself - how badly do you need this money right now and what do you think the prospects are of the fund recovering eventually before you do need the money?

 

[jhyb]

I appreciate the quick reply; I started the Roth IRA for the long run, but wow, all gone huh? So, it's either sell or hope for the great return right? I'm planning to stick with the same company and changing the allocations that I have currently, any advice anyone? Thanks.

 

[Texarkandy]

As to "new" monies you are putting in, you've now seen the reality (previously a hypothetical) of what can happen. Does that mean it may happen again in the next 5,10, 20 years? You might want to to double-check with yourself as to what your personal "risk tolerance" is (as someone recently reminded me on another thread)

You don't state your age, life situation, stage of life, etc - so it may be kind of difficult for anyone on here to give you any particular observations on your particular situation.

 

[ziggy29]

One would have to know what this money is invested in to say. If it's a lousy, high-fee investment that chronically underperforms the market, it might be a good idea to sell the fund and roll the cash over to a lower-cost custodian. I don't know about the investment options New York Life offers, but I doubt it would be better than what you could get with Vanguard or Fidelity, for example.

 

[2B]

I smell a variable annuity product. If so, you've got a very high fee "investment" and the even more money will disappear. It's hard to get ahead when you're paying 4 to 7% in total annual fees.

We really need more info to comment on your account. What is the investment format? What are any cancellation fees if you move it to another institution? What are the total fees involved? What is the asset allocation?

Having your NAV fall of about 25% in the last year is probably not too bad for a balanced AA. If you're in a non-annuity Roth, you might not be in bad funds. I do expect you to be paying pretty high fees for any investment you make through an insurance company. The one investment truth is that over the long haul high fees do not equate to better performance.

 

[ziggy29]

I smell a variable annuity product. If so, you've got a very high fee "investment" and the even more money will disappear. It's hard to get ahead when you're paying 4 to 7% in total annual fees.

Any salescritter who pushes an annuity in a Roth should be drawn and quartered.

 

[FIRE'd@51]

Any salescritter who pushes an annuity in a Roth should be drawn and quartered.

I believe that would be a subset of the annuity "sales critters" that 2B thinks should be drawn and quartered.

 

[2B]

Any salescritter who pushes an annuity in a Roth should be drawn and quartered.

I've seen people with variable and fixed annuities inside their IRAs. The sales pitch usually includes "guaranteed" and "can't lose value." Let's see what jhyb comes back with and if he comes back with anything.

 

[jhyb]

I appreciate all the quick replies. I got the exact sales pitch that you have mentioned. The allocations that the funds are split into

Mainstay VPHI Td BD 25%
Mainstay VP MC Value 25%
Van Eck Wrld HA 25%
FI VIP Mid Cap SC2 25%

I have never changed nor done anything else with this except contribut $400 a month for 4 and a half years. This Roth policy is called NYLife Flexible Premium Variable Annuity. I'll be calling the company on Monday to see what fees apply to change and let you guys know. Once again, thanks.

 

[2B]

This Roth policy is called NYLife Flexible Premium Variable Annuity. I'll be calling the company on Monday to see what fees apply to change and let you guys know. Once again, thanks.

Welcome to the grand association of "Those Screwed by Annuities." When you are asking about fees, be sure you get the NYLife annuity fees as well as the fees of the individual funds. Ask what happens if you want to get your money out.

I suggest you stop making any new contributions and set up a real Roth at Vanguard.

 

[ERD50]

NYLife Flexible Premium Variable Annuity

As you have probably figured out from previous responses, this was/is very likely not the best place to "invest". However, please do not let that "sour" you on long term investing. You have to keep in mind that long term means long term, and you can expect drops along the way unless you are using very conservative investments (which may not beat inflation in the long run either).

Keep posting, there may be some tricks and turns about the best way to move to a low fee investment that suits your risk tolerance (most likely with Fidelity or Vanguard). People here will help. Especially if they can partake in a drawing and quartering!

-ERD50

 

[travelover]

Welcome to the grand association of "Those Screwed by Annuities." When you are asking about fees, be sure you get the NYLife annuity fees as well as the fees of the individual funds. Ask what happens if you want to get your money out.

I suggest you stop making any new contributions and set up a real Roth at Vanguard.

I agree, but all is not lost. As 2B says, stop putting money into this account and go with a low cost Target Retirement Fund at Vanguard. Choose one for the year that you think you'll likely retire. You may have to pay a big penalty to get out of the NYLife annuity now, in which case it might be best to let it ride, at least until the penalty period is over.

 

[2B]

I agree, but all is not lost. As 2B says, stop putting money into this account and go with a low cost Target Retirement Fund at Vanguard. Choose one for the year that you think you'll likely retire. You may have to pay a big penalty to get out of the NYLife annuity now, in which case it might be best to let it ride, at least until the penalty period is over.

This turns into a financial decision. My father's VA that he bought for his kids had a 10% penalty for cashing it out before my youngest sister turns 59 1/2. That's 10 years away. The annual fees for the funds and annuity were 4%. It's a no-brainer in my opinion to take the 10% hit now and go into low cost funds.

 

[travelover]

This turns into a financial decision. My father's VA that he bought for his kids had a 10% penalty for cashing it out before my youngest sister turns 59 1/2. That's 10 years away. The annual fees for the funds and annuity were 4%. It's a no-brainer in my opinion to take the 10% hit now and go into low cost funds.

If the fees are that high, I'd agree.

 

[samclem]

Just to jump on the wagon: jhyb, you have been sold on a way of investing your money (a variable annuity inside an IRA) that is virtually always a bad deal for the investor and a great deal for whoever sold it to you.

The costs of a variable annuity are high, and about the only possible redeeming feature they have is that they get favorable tax treatment--but any investment in an IRA gets this treatment, so paying these costs buys you very little/nothing.

The silver lining: Because of the drop in your asset value, you questioned your decision, and now you know it was a bad one.

Recommendations:
-- Take the hit now and move your money into a real IRA at Vanguard
-- Have nothing else to do with whoever sold this thing to you. He/she does not have your best interests at heart. In fact, I believe I've read that this arrangement violates the regulations of some governing bodies.
-- Don't stop investing. Keep up your monthly savings rate, and read up on how best to do it. You can do this yourself, and the folks here will be happy to chime in with pointers.

 

[FinanceDude]

I smell a variable annuity product. If so, you've got a very high fee "investment" and the even more money will disappear. It's hard to get ahead when you're paying 4 to 7% in total annual fees.

We really need more info to comment on your account. What is the investment format? What are any cancellation fees if you move it to another institution? What are the total fees involved? What is the asset allocation?

Having your NAV fall of about 25% in the last year is probably not too bad for a balanced AA. If you're in a non-annuity Roth, you might not be in bad funds. I do expect you to be paying pretty high fees for any investment you make through an insurance company. The one investment truth is that over the long haul high fees do not equate to better performance.

It could be a VUL policy........

 

[W2R]

I have a Roth IRA policy with New York Life since '04 and I've contributed close to $15,000. I checked my statement recently and the ending value was $11,000. Should I stop my contribution or keep on going? Is the $4,000 completely gone and I'll never see it again? Any assistance will be great, thanks.

You're doing just fine, in the middle of a severe economic situation. I have contributed $16,000 to my Roth IRA, and after reaching a high of $17,029 last May 19th, today I have $8655 in it.

In my case, my Roth is a long term investment that is all in Vanguard equity funds. Unfortunately it is heavy on the financials and emerging markets, and our October 2008 surprise left me hanging. I was caught by surprise, and by now I don't want to sell them at these low share prices. But, I never planned to use it anyway until somewhere around 2030 to 2040 if ever, so hopefully that will be enough time to recover.

I will be contributing the full amount for 2009, as well. I will put it into more equity funds. But not to financials or emerging markets!

 

[jhyb]

Thanks everyone for your input, you all have given great insight. The person who took me into this policy was a friend of high school. Ina ny rate, I called NYlife and asked many questions.

I told them that my agent told me that this is compounding and guaranteed, so what's the interest?
-No interest, but we do have a fixed variable that runs 3.1%, (pshhh what the heck?). That'll cost 25%.

-In regards to allocation changes and recommendations, who manages and gives recommendations?
Your agent (He never called me to tell me that the units are doing so horrible that I should change it)

-What fees am I currently paying in that I don't see it in my quarterly statement?
$30 plus commission for your agent

Oh yea? How much am I paying him on commission when I'm losing money here?
-We can't disclose that information and he should have given you a prospectus on how much he is making commission. (he never has).

What is the surrender charge if I was to take it all out?
-This will take 9 years from intial activation of policy, since it was Oct '04 you will have to wait until 2013

So all in all, I have been screwed it seems. I decided to wait until 2013 to make another decision in hopes things will be better and I can make a clearer decision. This is a long long term since I am 28 years old and I have another 30 some odd years to go. Being in the military makes it difficult for me to check up on these issues as often as I would like to. So thanks to everyone and if you have more advice, I would really appreciate it.

PS. I contribute $400 a month, with all this craziness, should I decrease the contribution to let's say $200?

 

[ERD50]

Looks like you are making progress. Good work! A couple things:

2013 - is that an "all or nothing" surrender charge, or does it step down between now and then? As others mentioned, if the actual annual fees are higher than a comparable investment at Fidelity or Vanguard, the surrender charge *might* be worth swallowing.

Pulling out before 2013 or not will depend on those factors, but I can't see any reason to put any *additional* money into this. Pick an asset allocation, see if you'd be happy with something from Fidelity/Vanguard, and put the money there.

I'm glad to see you are taking the long term view on this. No sense beating yourself up over something you did in the past. Many of us have made far worse decisions - you just learn and move on. In fact, it looks like you were probably in fairly conservative investments, so despite the fees and other negatives, you probably actually made out OK - but in the long run, you want low fees.

-ERD50

 

[samclem]

PS. I contribute $400 a month, with all this craziness, should I decrease the contribution to let's say $200?

My two cents:
1) Unless there's some type of contractual obligation (there shouldn't be), don't put another dime into this thing. As a bonus, when you stop contributing maybe your old pal/agent will give you a call to see what is up, then you can give him the chewing out he deserves.
2) Start a regular or Roth IRA with Vanguard and have your dollars go there. That's what I did over the course of my 20+ year military career and it worked out very well.
3) Consider contributing to the Thrift Savings Plan (TSP) instead of/in addition to your IRA. The costs are even lower than Vanguard's. This program is a big benefit of military service, too few servicemembers take advantage of it. If you really want to put things on autopilot, just select one of their available Target Retirement Funds and let them do all the rebalancing for you.

Good Luck!

 

[FinanceDude]

Thanks everyone for your input, you all have given great insight. The person who took me into this policy was a friend of high school. Ina ny rate, I called NYlife and asked many questions.

Well, NYLife and others trains salespeople to get all the folks they know signed up first so they can survive.

I told them that my agent told me that this is compounding and guaranteed, so what's the interest?
-No interest, but we do have a fixed variable that runs 3.1%, (pshhh what the heck?). That'll cost 25%.

They might have been referring to the fact that some VAs have a guaranteed fixed option inside the contract.

-In regards to allocation changes and recommendations, who manages and gives recommendations?
Your agent (He never called me to tell me that the units are doing so horrible that I should change it)

Why would he, he's an insurance agent, he doesn't have much knowledge at all about markets and investing.........

-What fees am I currently paying in that I don't see it in my quarterly statement?
$30 plus commission for your agent

Probably the $30 a quarter is a trail on the VA.

Oh yea? How much am I paying him on commission when I'm losing money here?
-We can't disclose that information and he should have given you a prospectus on how much he is making commission. (he never has).

A BS answer, but your agent probably makes 7% on each contribution upfront, and the trail after that.

What is the surrender charge if I was to take it all out?
-This will take 9 years from intial activation of policy, since it was Oct '04 you will have to wait until 2013

CALL THEM BACK and ask how much the "free withdrawal amount" is. That's the amount that can be transferred without penalty........

PS. I contribute $400 a month, with all this craziness, should I decrease the contribution to let's say $200?

I would NOT fund it anymore at all, and when the agent calls you, tell him to find out what the "nonforfeiture settlement options" are.......