We are new to investing and need some advice. We have an old annuity account to which we no longer contribute. We have approximately $18,000 in this account and are earning about 5%. Should we move this into another type of IRA account that can get a better return, or leave it alone? We do not plan on taking any money from this account for 20 years.Thanks!
5% is an excellent rate to earn, especially in this day's interest rate environment. Even TIAA-CREF, usually the leader in the field, is only paying 4.85% on its annuity.Do you have any other investments, and if so, what are they?Is this an annuity inside an IRA? If not, it cannot be transferred to an IRA, but it can be transferred to another provider.
This is a separate IRA. My husband put $2000 a year into it before our company had a retirement plan. My husband now owns the business and there is a separate retirement plan in place. We haven't funded the IRA for about 8 to 10 years. It has a guaranteed 4.5% rate of return and currently is earning 5.1%. As I understand it, we are unable to open any new retirement accounts and this can't be rolled over into our current retirement plan.
An annuity is with an insurance company. If the interest rate is constant, you are talking about a fixed annuity. 5% as mentioned, is darn good. You won't get that from a bank CD or even buying a treasury bond. If you are young (since new to investing) and want to move into equities (maybe good, maybe not) talk to the insurance company that sold the annuity (you get a report at least annually with phone numbers) and ask about a variable annuity, and whether you could put some of the fixed annuity money into it without penalty. If you take the money out of the annuity, appreciation will be taxable. Since it is an "old account", presumably there would be no fees involved. If you can transfer some of the money to a variable annuity, you should be able to select stock choices that may (or may not) perform better than the 5% of which you are now certain. In summary: for fixed income, you are doing well. The way to generate a higher return is by taking more risk, as by buying equities. To know whether any of this is a good idea, we would need to know more about your circumstances. What do you want this $18000 to do for you? Can you leave it where it is until retirement and put new money into different types of investments, thus building up a diversified portfolio? Best wishes, Chris
Thanks so much for the replies!My husband has just turned 50. We are investing monthly through our business retirement plan and since it doesn't seem to make sense to move our annuity (since it is safely earning us 5%) we have also thought about setting up an index fund with maybe $10,000 from our savings and adding to it monthly--probably between $200 and $300. Ihave done some reading up on index funds and it seems the return, while not guaranteed of course, should, over a period of 20 years give a better return than any managed mutual fund. Does this seem a good choice for a long-term investment?
Index funds, such as the Vanguard S&P or Total Market, are an excellent place for additional investments if your time frame is more than 5 years. While you are at Vanguard you might also look at their REIT index fund, which would give you some exposure to real estate which will probably not go up and down in synchrony with the stock market. And to leave your annuity where it is, to do for you what you intended when you bought it, is also a good idea. Best wishes, Chris
If you take the money out of the annuity, appreciation will be taxableUmm. Chris, did you notice that the annuity is inside an IRA. She can rollover the IRA to another provider tax-free, but if she takes any money out, she'll be subject to the income tax you mentioned, and a 10% excise tax as well.
"that the annuity is inside an IRA. She can rollover the IRA to another provider tax-free, but if she takes any money out, she'll be subject to the income tax you mentioned, and a 10% excise tax as well. " Good point. That had escaped me. She can still diversify by transferring a part of money to another trustee, that is to open another IRA. Grumble, grumble....an IRA is a lousy place for an annuity.....!!!! Chris
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