No. of Recommendations: 8
Run. Annuities inside an IRA are redundant.

From ClarkHoward.Com

Clark wants to talk again about variable annuities and the damage they can do to seniors' bank accounts. Road shows where variable annuities are sold are popping up all over the country. The target is “nursing home age” people and the hook is a free meal. Once the salespeople have them hooked, they push annuities with a 7 percent guarantee on investment. Sounds impressive right?

Well, what these people aren't told is that annuities have huge commissions that eat up your money. In addition, the penalty to get out of an annuity is 17.5 percent of the money you invested. And the 7 percent is not a guarantee at all. So, in sum, there is never a time when people – older folks especially - should buy a variable annuity.

The groups that are supposed to regulate this industry are doing nothing. So, it's up to you to protect your money and to tell your relatives about it. If your parents tell you they that they have gotten an invitation to a free breakfast, tell them not to go and treat them to a breakfast yourself.

Clark also had this to say:

Clark has been getting tons of calls from listeners who have been ripped off in annuities. First of all, what's an annuity? Under the tax code, annuities are an investment vehicle you buy for retirement savings. And money in an annuity grows tax-sheltered until you take it out after age 59. When you take it out, you pay full tax on the earnings. Tax-deferred annuities may have had a place in someone's portfolio up until the early '90s.

But at that time, changes were made to the tax code. And today, the only reason annuities are sold is so they can be sold again. Because of that, they are the most expensive investments out there and they have huge commissions. A tax-deferred annuity has expenses that are10 times greater than a low-cost mutual fund. So, with all of the massive commissions and yearly fees, you give up two cents on every dollar.

It's like starting backwards every year. Getting out of annuities is also a hassle. You are charged massive “surrender fees” as high as 7 to 10 percent if you want to cancel the account. So, annuities are much easier to get into than to get out of. Granted, there are several different kinds of annuities. Teachers have annuities for retirement and that may be the only thing available through their work.

But tax-deferred annuities are different. So, if you're in an annuity and you want to get out, you can do what's called a “transfer” to either TIAA-CREF - or They charge much less than regular companies. And, you only want to transfer if you've gotten out of the “surrender charge” time, which usually last 5 to 7 years. Another annuity is called an “immediate payout annuity,” and these are very technical and esoteric.

The bottom line is that you need to save the maximum you can in your retirement plan at work. That is the first priority. Your second priority is to get out of debt. Opening a Roth IRA is also a good idea. And then start investing for your child's education. But if a salesman starts pitching “tax-advantaged accounts” or annuities, know that it is not in your best interest.

Who wonders if this broker has cold-called you, or is someone with whom you have a trusted relationship...
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