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Author: BGPenhollo Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76621  
Subject: Re: CONVERT 401K INTO ANNUITY Date: 11/26/1999 10:58 AM
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DDeveny asked about converting a vest 401K into annuity.

1st thing you should know about an annuity is that it is an investment vehicle which was started by insurnace companies so many of them have guarantees of set returns which is basically an insurance policy of sorts which the investor pays for.

Variable Annuity became useful for those who could not put more money into an IRA or 401K but wanted to shield dividends and mutual fund distributions from yearly income taxes. You could invest in variable annuities much like mutual funds with after tax dollars and not pay taxes on the gains until you begin taking money out of the annuity. Money coming out is taxed at regular income tax rates - not capital gains.

There are seldom any reason to have an annuity within an IRA or 401K because IRA's and 401K's basically shield all yearly gains from taxes and upon distribution, you pay income taxes.

Annuities charge greater fees and have high front load charges and rear load charges. The broker, Bill, loves them because he takes some of the invested money off the top of your investment.

Also you may want to look into last week's WSJ I think because there is talk of possible class action suit against an insurance company for the deceptive practices of selling annuities with 401K and IRA's.

My retired mother was tricked/scammed into rolling over an IRA into an IRA Annuity. It was a bad move that ended up costing her.

Your wife's friend Broker Bill might need to warned that selling of annuities within IRAs may become the next BIG class action suit.

I hope it is.

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