My 40 Yr old daughter said she was investing in her IRA. She has been investing in this annuity instead.

Pointby2

Pointby2

Recycles dryer sheets
Joined
Jul 14, 2018
Messages
278
Location
Anaheim
Missys IRA edit.jpg


What are the pro's and cons of an Annuity like this? Is it tax deductible like a normal IRA contribution is? There is virtually no information available on the North American website which scares me. I assume it will pay out a small sum of money after she reaches 59.5 or retirement age. Any advice on what she should do with it going forward? Keep funding it or not? My gut is to stop sending new money and open a traditional IRA and Roth IRA. Her small employer doesn't offer a 401K plan.

Thanks for any advice!!
 
Contributions to that aren't deductible.

You're going to get a mixed bag of comments on what to do with it. My opinion, she's better off funding a roth and traditional IRA, but in what order depends on her tax situation. I like roths. I wish I invested more in roths when they first came out.

I'd probably leave it be until the surrender fees go away. any idea what fee they are charging?
 
Kings over Queens said:
Contributions to that aren't deductible.

You're going to get a mixed bag of comments on what to do with it. My opinion, she's better off funding a roth and traditional IRA, but in what order depends on her tax situation. I like roths. I wish I invested more in roths when they first came out.

I'd probably leave it be until the surrender fees go away. any idea what fee they are charging?
Click to expand...
^what he said. get her steered in a direction that makes more sense, and wait out the surrender fees. It is just a blip in the large scheme of things but my opinion is to put no more at that vehicle.
 
Agreeing with others... in a way.... I would look to see what fees etc. are being taken out including the investments... it might be better to close it out and pay a surrender fee instead of paying high fees for up to 7 years...

I also like ROTH in most cases unless you are in high tax brackets... pay a small tax today in order to have a large stash with no taxes in the future...
 
Al18 said:
Based on the statement, the annuity was opened in 4/12/16 and the statement is the balance 4/11/24. $28,500 was invested and $3,074 in interest was earned for a total of 31,574.

By contrast, if the same amount was invested in Fidelity Balanced on the same date, the balance would be $63,127 according to https://www.portfoliovisualizer.com/fund-performance?s=y&sl=CeEbdUxom1iFIs6KUdP67
Click to expand...
It's a little more complicated than that since she tells me that she puts "some" money in it every year that she can. She's put in $28,500 and it's only worth $31,574 so just about any straightforward stock fund would have done markedly better.

I'm working up questions for her. Like, why did you choose this? What is your risk tolerance? Do you need the tax write offs of a real IRA? Do you have a record of your investments by year?
 
It's already been 8 years. Unless the surrender period ends in a year or two, I'd 'pay' the surrender fee and cash it out. Invest in something like VOO or VTI, and she'll likely make up the loss in no time. And try to educate the company she works for that this is a really bad deal.
 
Pointby2 said:
It's a little more complicated than that since she tells me that she puts "some" money in it every year that she can. She's put in $28,500 and it's only worth $31,574 so just about any straightforward stock fund would have done markedly better.

I'm working up questions for her. Like, why did you choose this? What is your risk tolerance? Do you need the tax write offs of a real IRA? Do you have a record of your investments by year?
Click to expand...
I think she put in $28,500 but it's only really worth the surrender value of $28,107. Going to be a painful discussion. Remember the concept of sunk costs. The only factor in the decision is what is the best action moving forward.
 
I think I see plenty of info on the webpage. I simply google the annuity name. The pwrformance may be worse than it seems. The annuitant seems to have split the investment evenly among four stock index “funds”. The annuity machine has eaten up most of the gains.
 
I know almost nothing about annuities, but in the top right corner of the page it says "Annuity Type IRA", so I can see how she would think she was investing in an IRA.
 
N02L84ER said:
I know almost nothing about annuities, but in the top right corner of the page it says "Annuity Type IRA", so I can see how she would think she was investing in an IRA.
Click to expand...
I have an annuity that is an IRA. I rolled a small 401K into it to get it started. I could have put more money into it but I decided not to do so. I think before anything is done, a complete understanding of this product needs to be obtained. I would start with getting a copy of the contract and a contact that can answer questions - with the caveat that the contract language is the final word.
 
Jerry1 said:
I have an annuity that is an IRA. I rolled a small 401K into it to get it started. I could have put more money into it but I decided not to do so. I think before anything is done, a complete understanding of this product needs to be obtained. I would start with getting a copy of the contract and a contact that can answer questions - with the caveat that the contract language is the final word.
Click to expand...
I have several "annuities" that are IRAs (now Roths.)
 
She bought an annuity - that tells me she want’s to reduce her risk. That’s why I suggested Fidelity Balanced, which is 60% stocks/40% fixed and bonds.
 
I’ve spoken to dozens of folks that think an IRA is an investment in and of itself without realizing it’s what you put IN the IRA that matters. I tell the ones that’ll listen an IRA is just a basket. You can put all sorts of investments in the basket but the IRA rules dictate how you can add or remove them.
 
Al18 said:
She bought an annuity - that tells me she want’s to reduce her risk. That’s why I suggested Fidelity Balanced, which is 60% stocks/40% fixed and bonds.
Click to expand...
Agreed, that's one of my questions for her. I suspect that this was bought for her by her ex-husband, or it was "sold" to her without her understanding. In any case, we'll need to determine her risk tolerance moving forward.
 
Roth IRA and IRA Annuities Investopedia information:

Key Takeaways​

  • An individual retirement annuity is an insurance contract that works much like an individual retirement account or IRA.
  • Individual retirement annuities invest only in fixed or variable annuities, while IRAs offer a wide range of investments.
  • Like IRAs, individual retirement annuities come in both traditional and Roth versions.
  • As a result, depending on the type, the owner can either take an upfront tax deduction or receive tax-free income later
 
Based on the beginning and ending values for the 1 year period, it looks like it yielded a little under 3%. Not great.

It is a flexible premium deferred annuity in an IRA. Flexible premium means she can make premium deposits as she wants, no requirement to make any.

Given the lackluster yield in a good year (Apr 2023 to Apr 2024) I would surrender and rollover the proceeds into a traditional IRA with one of the major brokerage firms.
 
I don't see anything to indicate that she has been funding this beyond the initial payment which was probably transferred in from a preexisting IRA.

Unless she is in a high income bracket I would have her open a Roth IRA (i.e. at some brokerage such as Fidelity) and fully fund it on a yearly basis.

I would find out when the surrender period on this "thing" is. I would find out what the expenses and costs associated with this "thing" are.

As it has purported made a woeful return after all these years - and a negative one after factoring in the surrender charge - I have to think the fees and expenses on this one are onerous.

In her position, I don't believe that I would add additional funds to this unless there is something that I don't just don't see here.
 
MarieIG said:
I don't see anything to indicate that she has been funding this beyond the initial payment which was probably transferred in from a preexisting IRA.

Unless she is in a high income bracket I would have her open a Roth IRA (i.e. at some brokerage such as Fidelity) and fully fund it on a yearly basis.
Click to expand...
She needs to be careful, depending how it was funded, transferring it to a ROTH could incur taxes and maybe even a penalty. I’m not sure on the ROTH rules whether or not moving it into a ROTH would be a conversion and subject to taxes and early withdrawal penalty. It seems like it would. She should be able to roll in over into a brokerage IRA and not have to worry about that.
 
I am just going to throw out a thought you can tell your DD....

One of my sisters invested money into a retirement account at work... Some guy came around and talked her and others to invest in it... it was a really bad deal and had something like a 1.25% expense ration or fee... do not remember...

When my sister asked me about it a few years later I got her to move it to a much better option... her comment to me was 'well, without him coming around and getting me to invest I would have nothing right now'... so, she saw the bright side of that investment... she HAD money to invest somewhere else...
 
Jerry1 said:
She needs to be careful, depending how it was funded, transferring it to a ROTH could incur taxes and maybe even a penalty. I’m not sure on the ROTH rules whether or not moving it into a ROTH would be a conversion and subject to taxes and early withdrawal penalty. It seems like it would. She should be able to roll in over into a brokerage IRA and not have to worry about that.
Click to expand...

If it was funded from a traditional IRA, she can later transfer it to a traditional IRA and convert it to a Roth bit by bit or all at once, her preference. She would need to confirm its source, tradition deductible vs. traditional non-deductible vs. Roth. You can convert prior to 59 1/2 without the penalties (although it is my understanding that pre-tax money would be subject to income tax). It is the withdrawing from an IRA altogether (as opposed to transferring) that, barring limited exceptions, may trigger the penalties.
 
the surrender period is 12 years. It apoears to be in year 8 and the surrender charge is 8% if the doc I posted is correct. There is a 10% free withdrawal each year.
 
I learned today that my daughter's ex-husband's family accountant put them into this awful annuity. It's more than a little irritating to think he made more money on it in commissions than she will ever make on it. :mad:
 
Pointby2 said:
I learned today that my daughter's ex-husband's family accountant put them into this awful annuity. It's more than a little irritating to think he made more money on it in commissions than she will ever make on it. :mad:
Click to expand...
Yeah a "friend" sold me the one I had. It's amazing how many "friends" went into the financial product industry. I never knew I had so many friends.
 
You must log in or register to reply here.

Similar threads

R
Old and Started in a Big Hole
2
RetirementOrDieTrying
R
B
41 Yr Old Future Retiree - Please Donate to My Retirement Fund
The Cosmic Avenger
The Cosmic Avenger
Q
Yet another thread looking for advice :)
qwertyguy123
Q
E
Any experience with the ISCGroup?
Sunset
Sunset
K
How to approach taxable savings
karen1972
K

Latest posts

Back
Top Bottom