Single Premium Deferred Annuity - Am I right to not trust it?

[Dwhit]

I was trying to get some tax forecasting for retirement purposes, and a local investment broker offered up a North American Secure Horizon Plus annuity. The attractive part was that if I invest a good bit of money rolled over from my IRA , they will "give" me a 20% "bonus" to my "accumulated value". The broker argues that would help offset of paying taxes on the money taken out of the IRA. I really don't understand it and it seems to be associated with some kind of life insurance

I know I have seen many warnings to avoid annuities on this website, so I am extremely skeptical. Has anyone had any experience with this type of product, and is there anything to recommend it?

 

[RetMD21]

Annuities aren't for everyone. You can check to see if you are at least getting a good deal Immediate Annuities - Income Annuity Quote Calculator - ImmediateAnnuities.com
The 20% bonus makes me think you aren't getting a good price

 

[braumeister]

Ask for a copy of the full prospectus. It may put you to sleep around page 374, but at least you'll have all the details.

 

[Texas Proud]

So let me understand what you are buying...

An annuity that you will NOT be taking any income right now... but it will grow... the question is at what rate?

It has a life insurance policy attached to it... is the value he is touting THAT amount? To qualify to be a life insurance policy in an annuity the death benefit has to be larger than the annuity... I think it is 20%...

My mom bought a def annuity in the 80s... I did not find out about it for many years... it was not good... I was able to convert to one with the life insurance attachment... in the end it worked out well as the fees on that was much lower... and we kept it until she passed in 19 so it was a pretty big amount that we got tax free...

 

[aja8888]

So he wants you to fund a large annuity using IRA money? What will your tax liability be for the withdrawal?

 

[Dwhit]

It would be about 25%, federal plus state

 

[Dwhit]

So let me understand what you are buying...

An annuity that you will NOT be taking any income right now... but it will grow... the question is at what rate?

It has a life insurance policy attached to it... is the value he is touting THAT amount? To qualify to be a life insurance policy in an annuity the death benefit has to be larger than the annuity... I think it is 20%...

My mom bought a def annuity in the 80s... I did not find out about it for many years... it was not good... I was able to convert to one with the life insurance attachment... in the end it worked out well as the fees on that was much lower... and we kept it until she passed in 19 so it was a pretty big amount that we got tax free...

I’m not exactly sure what he is proposing. I think you can take some money out, but the main attraction seems to be life insurance that could be passed to survivors.

 

[jazz4cash]

. The attractive part was that if I invest a good bit of money rolled over from my IRA , they will "give" me a 20% "bonus" to my "accumulated value". The broker argues that would help offset of paying taxes on the money taken out of the IRA. I really don't understand it and it seems to be associated with some kind of life insurance

I know I have seen many warnings to avoid annuities on this website, so I am extremely skeptical. Has anyone had any experience with this type of product, and is there anything to recommend it?

I’m not exactly sure what he is proposing. I think you can take some money out, but the main attraction seems to be life insurance that could be passed to survivors.

I think you have answered your own question. Some of the statements you made are kinda scary. If the main attraction is life insurance, why
even consider an annuity? If for some reason an annuity was a good solution you could just use tax deferred money, no taxes due until money comes out of the annuity. The person telling you a bonus takes the sting out of the taxes due has no clue. Usually you can never ‘cash out’ the accumulation value. It can only be used to calculate an income stream. Run away fast.

 

[mrfeh]

I think you have answered your own question. Some of the statements you made are kinda scary. If the main attraction is life insurance, why
even consider an annuity? If for some reason an annuity was a good solution you could just use tax deferred money, no taxes due until money comes out of the annuity. The person telling you a bonus takes the sting out of the taxes due has no clue. Usually you can never ‘cash out’ the accumulation value. It can only be used to calculate an income stream. Run away fast.

+1

 

[Dwhit]

I think you have answered your own question. Some of the statements you made are kinda scary. If the main attraction is life insurance, why
even consider an annuity? If for some reason an annuity was a good solution you could just use tax deferred money, no taxes due until money comes out of the annuity. The person telling you a bonus takes the sting out of the taxes due has no clue. Usually you can never ‘cash out’ the accumulation value. It can only be used to calculate an income stream. Run away fast.

Thanks for the advice. I feel there are way too many things I don't know about it, and I am just not comfortable with that type investment. I'll just stick to my 60/40 S&P index/bond plan and pay taxes as required. It's been working well so far.

 

[Kings over Queens]

It's been working well so far.

Smart.

I know a guy who built his business model on getting people to move deferred retirement money to life insurance and annuity contracts and it was something I didn't understand until I let him pitch me. He wanted to be a shared referral source and I figured I should understand what he was doing.

In the end what he was doing was generating ridiculous amounts of commission income for himself with little to no benefit to the client. sure, their beneficiaries would get a ton of tax free money when they die, no dispute, but there are other ways to do that.

 

[all4j]

I am just not comfortable with that type investment.

I think you are making a wise decision. However, I would quibble with this being labeled an “investment”. Rather, I think it better to classify as “insurance”. The distinction may seem without meaning, but it does change the regulatory environment & helps explain the complexity. Target to be sold to is often someone who is risk adverse & concerned with some adverse situation(s). By charging (relatively) high fees, capping upside, etc, the product can avoid (or somewhat insure against) some downside risk. This particular product has riders for possible social security reductions, a form of long term care, etc. Trust in the agent is more pivotal in closing the deal than anyone really understanding the product.

 

[aja8888]

If you really are wanting to leave a lump to heirs, just buy a term life insurance policy.

 

[jazz4cash]

Thanks for the advice. I feel there are way too many things I don't know about it, and I am just not comfortable with that type investment. I'll just stick to my 60/40 S&P index/bond plan and pay taxes as required. It's been working well so far.

I think the type of annuity you described is almost never appropriate but it has a big commission so many financial salespeople push it. We have a bunch of radio infomercials that come on weekend mornings that push these products HARD. They say lots of scary things about equity investing. If you want to learn more about various types of annuities, pros, cons, etc. Stan the Annuity Man has many good resources on his website and youtube videos. He comes across as clownish but he is legit IMO. Immediateannuities.com and Blueprint Income are also very good.

 

[Koolau]

Thanks for the advice. I feel there are way too many things I don't know about it, and I am just not comfortable with that type investment. I'll just stick to my 60/40 S&P index/bond plan and pay taxes as required. It's been working well so far.

Yeah, if you don't understand it well enough to explain it to us, you're likely better just "letting this fantastic opportunity go on by."

Otherwise, read and UNDERSTAND the prospectus. Good luck and let us know what you decide.

 

[aja8888]

Yeah, if you don't understand it well enough to explain it to us, you're likely better just "letting this fantastic opportunity go on by."

Otherwise, read and UNDERSTAND the prospectus. Good luck and let us know what you decide.

Get a pdf copy of the prospectus and search for the word "fee".

 

[Texas Proud]

I’m not exactly sure what he is proposing. I think you can take some money out, but the main attraction seems to be life insurance that could be passed to survivors.

If you want to have life insurance it is not a great vehicle for it... just buy term life...

The ONLY thing that I saw as an advantage was that the funds were not taxable to anybody if you died... but if not in one of these kind of annuities they would have to pay taxes on that money..

So if that is what you want, then the next question is what will it earn My mom's was based on (IIRC) the 10 year treasury with a floor amount like 4% (it was the 80s so nobody saw 0 interest back then)...

 

[pb4uski]

I was trying to get some tax forecasting for retirement purposes, and a local investment broker offered up a North American Secure Horizon Plus annuity. The attractive part was that if I invest a good bit of money rolled over from my IRA , they will "give" me a 20% "bonus" to my "accumulated value". The broker argues that would help offset of paying taxes on the money taken out of the IRA. I really don't understand it and it seems to be associated with some kind of life insurance

I know I have seen many warnings to avoid annuities on this website, so I am extremely skeptical. Has anyone had any experience with this type of product, and is there anything to recommend it?

That 20% "bonus" sounds like a gimmick to me. There is no such thing as a free lunch. Be cautious and skeptical. What is the surrender charge schedule? When does this bonus crystalize so it can be withdrawn?

 

[ncbill]

I was trying to get some tax forecasting for retirement purposes, and a local investment broker offered up a North American Secure Horizon Plus annuity. The attractive part was that if I invest a good bit of money rolled over from my IRA , they will "give" me a 20% "bonus" to my "accumulated value". The broker argues that would help offset of paying taxes on the money taken out of the IRA. I really don't understand it and it seems to be associated with some kind of life insurance

I know I have seen many warnings to avoid annuities on this website, so I am extremely skeptical. Has anyone had any experience with this type of product, and is there anything to recommend it?

You should be able to roll your IRA balance into a qualified annuity without tax consequences.

Annuity Rollover Rules: Roll Over IRA or 401(K) Into an Annuity.

 

[audreyh1]

Don’t let someone sell you an annuity to avoid paying taxes. Any gimmick is a gotcha and if life insurance is rolled in then it’s a super gotcha.

Unfortunately I think asking bank folks for financial advice makes anyone a sitting duck.

 

[Chuckanut]

I’m not exactly sure what he is proposing.

Right there the red alert lights are flashing in my mind. You are smart to do your due diligence work now, before you sign, turnover any money, and incur taxes.

 

[2retireearly]

So he wants you to fund a large annuity using IRA money? What will your tax liability be for the withdrawal?

Since they already paid the taxes on the money when it was withdrawn from the
IRA, then this payment into the Annuity will be classified as after tax money. Then when withdrawals are made from this new Annuity, the tax will only be on the Gain..not this payment amount. Also, this Annuity will have a death benefit. There are charges for this death benefit. So if this is a Variable annuity, there are charges buried into the unit value each day, which is the daily amount applied to the AV. Or if a Fixed Annuity the charge for the DB is applied to the fixed interest rate...so you always get less AV on an account with a death value vs just an account, with no death benefit. there are of course other fees inherent to these rates too...like commissions, etc. There are using AV guarantees (like a min growth of 4%, or a step up value ever x years, etc..which can be great, but do have charges in the rates, too, as the insurance company of course needs to make money, to give you a guarantee on your money's growth. . Also, most of these Annuities have x number of years, that have charges to withdraw any of your money. So maybe for 7 years, you have a charge removed to obtain your own money. It usually goes down each year..like 7%, 6% , etc to 0%. Read the policy carefully.

 

[tpkinsl]

One of my investment tenets has been “if I can’t explain an investment to my mom and have her understand it, I shouldn’t be buying it”. Mom is now 92 and no longer my soundboard but the principle holds.

If you have so many questions about the product, move along

 

[hotwired]

Check out stantheannuityman.com . The cheesiest branding I've ever seen, and he's that guy that says "Mr so and so is my father, please call me Stan". But ... Perplexingly he's the real deal. I do believe he's the largest seller of Spias, dias and mygas in the US (absolutely could be wrong). Check his blog out if you can sit through the jokes, and stories about his mother. He's very big on being cautious about those bonuses.

 

[Theophrastus Bombastus]

Run, Forrest, RUN!
Immediately stop all contact with this crook.

Repeat after me:
There is no free lunch.
There is no free lunch.
There is no free lunch.
There is no free lunch.
There is no free lunch.
...until you get it!