Fixed Annuity Question

[OkieTexan]

Does anyone have a good source of information about fixed annuities? Here is the deal:

I purchased a non-qualified fixed annuity in 1993. It has passed through three companies and numerous agents over the years. I am not sure why I bought the thing. It must have been a weal moment! Rather than saying I coulda... I woulda... or I shoulda, I am thinking of withdrawing all my funds and putting the money in a better spot. The interest rate has hit the bottom at 3%. I am also aware that withdrawing the funds will create a taxable event. I bought it for $25,000 in 1993. It is worth $47,000 now.

The form I received to withdraw the funds has a provision to allow the insurance company to withhold income tax. Is this a good idea? How much? Is is possible to roll one of these into an IRA? What is a 1035? How does it work?

Any suggestions on how to get credible information?

 

[bbbamI]

My husband recently moved his annuity from one insurance co to Fidelity. The reason he did this was because of the fees. If he had cashed the annuity out, he would have to pay ordinary income taxes plus a 10% penalty since he is only 52.

Since we went with Fidelity, they filled in most of the information on the form, we looked it over, signed it, and sent it back. The 1035 exchange information was included on the form. This form is used so that you will not have to pay taxes since you are simply placing it with another company. The Fidelity website has a lot of information regarding annuities and any other type of investment.

I know I couldn't answer all of your questions, but I hope this helps.

 

[FinanceDude]

Does anyone have a good source of information about fixed annuities? Here is the deal:

I purchased a non-qualified fixed annuity in 1993. It has passed through three companies and numerous agents over the years. I am not sure why I bought the thing. It must have been a weal moment! Rather than saying I coulda... I woulda... or I shoulda, I am thinking of withdrawing all my funds and putting the money in a better spot. The interest rate has hit the bottom at 3%. I am also aware that withdrawing the funds will create a taxable event. I bought it for $25,000 in 1993. It is worth $47,000 now.

The form I received to withdraw the funds has a provision to allow the insurance company to withhold income tax. Is this a good idea? How much? Is is possible to roll one of these into an IRA? What is a 1035? How does it work?

Any suggestions on how to get credible information?

You would owe ordinary income tax rates on any withdrawals fromt he annuity. You could 1035 (transfer) the annuity from the carrier you have to another without a penalty, it's a pretty simple form you sign.

Try www.annuity.com

 

[mickeyd]

I would look at doing a 1035 exchange from your current company to Vanguard. Before you do make sure that all surrender changes have expired. I have seen annuities that retain a surrender charge as long as 15 years ( ) but they are rare.

Why take the tax hit on the lump sum distribution if you do not have to? As long as you do not need the money to live on, I would keep it with Vanguard until you are at least 59 1/2 years old and actually can use the income and avoid the 10% penalty.

 

[OkieTexan]

Thanks for the tips. Annuity.com explains pretty well the differences between the types of annuities and how they work. Wikipedia is pretty good, too.

I suppose the 1035 process is confined to transferring from one annuity provider to another. Still not sure if that is the right answer for me. Still checking options.
I really don't need the key feature of an annuity: "guaranteed income payments".
Also, when the "teaser rate" expires, I would still have to seek a higher rate. Every time you move one of these things the annuity date changes. The one I have is already up to 2042 (age 90 for me). So, the only real advantage would be tax-deferred savings.

It just bugs me to leave money in a 3% account........ tax-deferred or not!

 

[brewer12345]

Thanks for the tips. Annuity.com explains pretty well the differences between the types of annuities and how they work. Wikipedia is pretty good, too.

I suppose the 1035 process is confined to transferring from one annuity provider to another. Still not sure if that is the right answer for me. Still checking options.
I really don't need the key feature of an annuity: "guaranteed income payments".
Also, when the "teaser rate" expires, I would still have to seek a higher rate. Every time you move one of these things the annuity date changes. The one I have is already up to 2042 (age 90 for me). So, the only real advantage would be tax-deferred savings.

It just bugs me to leave money in a 3% account........ tax-deferred or not!

Bear in mind that you needn't bother with the whole stream of payments mishmash (almost nobody does, in fact). What you realy want is to just reinvest the money in something better and leave it in the annuity "shell" to avoid paying the taxes. Vanguard, TIAA-CREF and Fidelity will all happily do this for you. What you want is a variable annuity with no supplemental guarantees. This is basically a mutual fund with deferred tax treatment and pretty low expense ratios, and the underlying investment can be almost anything you want it to be (small caps, S&P 500, bond fund, REITs, etc.).