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Author: amablaza Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75340  
Subject: Are there alternatives to variable annuities? Date: 4/21/1998 5:59 PM
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Does anyone know of an "umbrella" investment vehicle that:
(1) will accept a lump sum contribution all at once;
(2) will accommodate self-directed stock portfolios;
(3) can keep its annual fees and charges to 1.5% or less;
(4) is targetted for accumulating retirement funds; and
(5) will receive tax-deferred treatment on its earnings?

I have ruled out variable annuities due to their high fees. I have also been told that variable annuity monies can only be invested in mutual funds. Is this true?
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Author: gmaxwell Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2970 of 75340
Subject: Re: Are there alternatives to variable annuities Date: 4/21/1998 6:42 PM
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From personal and similiar experience -- I opened an Ameritrade (plug, plug) account and a Roth IRA also at Ameritrade. The fly in the ointment is the *earned* income provision vis. *unearned*, but that is really a minor hurdle afterall. The earnings in the Roth will accumulate tax free, much better than tax defered, but is limited to $2k per year unless you're married. The new long-term holding tax rate of 20% is better than the taxed-as-ordinary-income-when-withdrawn of a traditional IRA, in my view. Read whatever advice TMF Pixy volunteers thoroughly, as it will be very good.

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2977 of 75340
Subject: Re: Are there alternatives to variable annuities Date: 4/22/1998 8:36 AM
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Greetings, Amablaza, and welcome.

<<Does anyone know of an "umbrella" investment vehicle that:
(1) will accept a lump sum contribution all at once;
(2) will accommodate self-directed stock portfolios;
(3) can keep its annual fees and charges to 1.5% or less;
(4) is targetted for accumulating retirement funds; and
(5) will receive tax-deferred treatment on its earnings?

I have ruled out variable annuities due to their high fees. I have also been told that variable annuity monies can only be invested in mutual funds. Is this true?>>

I'm glad you clarified the source of the lump sum in your second post. If you hadn't, we may have thought you were speaking of a retirement plan cash out.

The monies you are receiving as an inheritance can be put to work for you in a tax deferred vehicle fully in a variable annuity, partially in an IRA or fully in tax-exempt municipal bonds issued by your state. You've ruled out variable annuities (good for you), and they can't be invested in self-directed stock trades anyway. Because that's your desire (i.e., trading in stocks), that also eliminates the municipal bonds, which would tend to significantly lag the after-tax performance of stocks over the long term.

That leaves you but one choice with two vehicles: Put $2K in an IRA (I'd suggest a Roth) and the remainder in a taxable account with the discount broker of your choice. Each year, move $2K of the taxable account to the IRA. The discounter will keep your annual expenses low and allow you maximum freedom for stock trades. The IRA will allow tax deferral on at least part of the money plus (if you use a Roth) ultimate tax-free withdrawals. If the taxable account is kept in stocks, you also gain the lower capital gains rate on most of your earnings.

Regards….Pixy


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Author: minnat Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2979 of 75340
Subject: Re: Are there alternatives to variable annuities Date: 4/22/1998 9:03 AM
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Pixy:

Amablaza is going to have to move the annual $2K in cash from the taxable account to the Roth, right? My understanding is that you cannot fund these things with stocks you already own.

Minna

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 2982 of 75340
Subject: Re: Are there alternatives to variable annuities Date: 4/22/1998 1:26 PM
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Minna,

<<Amablaza is going to have to move the annual $2K in cash from the taxable account to the Roth, right? My understanding is that you cannot fund these things with stocks you already own.>>

That's correct. The only securities that can be moved to an IRA are those that are part of a qualified rollover from another IRA or a qualified retirement plan.

Regards....Pixy

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