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I HAVE BEEN UNABLE TO CONVINCE MY WIFE THAT IT WOULD BE ABSURD TO CONVERT HER FULLY VESTED 401K OF APPROX. $80,000 HANDLED BY TRANSAMERICA INTO AN ANNUITY WITH THE HARTFORD RECOMMENDED BY HER FRIEND, BROKER BILL. CAN ANYONE GIVE ME ANY "AMMUNITION" TO USE TO CONVINCE HER THAT AN ANNUITY SHOULD NOT BE USED IN A 401K OR IRA? HELP!
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I HAVE BEEN UNABLE TO CONVINCE MY WIFE THAT IT WOULD BE ABSURD TO CONVERT HER FULLY VESTED 401K OF APPROX.
$80,000 HANDLED BY TRANSAMERICA INTO AN ANNUITY WITH THE HARTFORD RECOMMENDED BY HER FRIEND, BROKER BILL.
CAN ANYONE GIVE ME ANY "AMMUNITION" TO USE TO CONVINCE HER THAT AN ANNUITY SHOULD NOT BE USED IN A 401K OR
IRA? HELP!



HERE ARE SOME (oops! I forgot to turn off the CapsLock Key! Sure don't want to forget that!). Here are some links to a couple of sites that are not exactly big on annuities:

http://www.quicken.com/annuities/

http://www.smartmoney.com/smt/asksmi/index.cfm?story=19990826

http://www.smartmoney.com/ac/retirement/investing/index.cfm?story=wrongannuities

http://www.smartmoney.com/smt/asksmi/index.cfm?story=19991026

http://www.smartmoney.com/smt/asksmi/index.cfm?story=199712122

http://www.smartmoney.com/smt/consumer/index.cfm?story=199811113

When some people hear the initial pitch, you can't get them out of an annuity. Good luck.

Taylor
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Here is an excerpt from a good article "The great annuity rip-off", Forbes magazine, Feb 9, 1998:

"Take this quiz. Are you:
- contributing the max to your IRA and 401K?
- very sure you won't need the money until you are past 59 1/2?
- confident you won't have an occasion to either give appreciated securities to charity or leave them to heirs?
- Going to invest in either junk bonds or a high-turnover stock portfolio?
- Prepared to lock up the money for a decade or more and/or annuitize the payouts?
- Going to buy a no-load contract? (see table, p. 108)
- Certain that your tax rate will be lower in retirement?

If ALL your answers are 'yes', then consider owning an annuity."

As I remember, the article dealt mostly with opening an annuity with new money, not converting a 401K into an annuity. You should read the article for more details.
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DDEVENY asked, "CAN ANYONE GIVE ME ANY "AMMUNITION" TO USE TO CONVINCE HER THAT AN ANNUITY SHOULD NOT BE USED IN A 401K OR IRA"

Sounds like your wife has made up her mind and if she is like mine there probably nothing you say that will change her mind. If I were you I would ask that she find out the following information:

1)What is the yearly percentage she is paying in admimistration fees for her present 401k?

2)What is the yearly percentage she will pay in the annuity and how much of that will Broker Bill get?

3)What is the load she will pay when she buys the annuity and how much of that will Broker Bill get?

Once she has this information ask her if she would take the $ difference between the answer to #1 and #2 and the $ amount of the load in #3 and while driving 65 mph down the highway would she throw it out the window? If the answer is no then she shouldn't buy the annuity, if it yes then no arguement you give will change her mind.

Point out to her that when she sees the $ amount that friend Broker Bill will get when she buys the annuity and the $ amount he will get every year she will know why he is making this recommendation. Also don't be surprised if he is hesitant to give the information as to how much he will get of her money!!

Good Luck, DaveK
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DDEVENY, you asked:

<< I HAVE BEEN UNABLE TO CONVINCE MY WIFE THAT IT WOULD BE ABSURD TO CONVERT HER FULLY VESTED 401K OF APPROX. $80,000 HANDLED BY TRANSAMERICA INTO AN ANNUITY WITH THE HARTFORD RECOMMENDED BY HER FRIEND, BROKER BILL. CAN ANYONE GIVE ME ANY "AMMUNITION" TO USE TO CONVINCE HER THAT AN ANNUITY SHOULD NOT BE USED IN A 401K OR IRA? >>

It would be helpful to know WHY you haven't been able to coin vice your wife . . .??? What is it that's she's so interested in for an annuity?

We can ASSUME we're talking about a "Variable Annuity" . . . . and we can ASSUME were talking about a "Deferred" Variable Annuity ???? We can also ASSUME that this is the be a Deferred Variable Annuity inside of an IRA??? If so, she needs to realize that the expenses that cut into performance will be a little higher (about 65 basis points on average according to an Ibbotson study) than if she just used a mutual fund. She should also note that the number of investment choices are much less that if one is looking to mutual funds. Most importantly, she NEEDS to fully realize that there is a "surrender period" where if she should change her mind and want to change to something else (even some other annuity) within there period, she's going to wait to the end of that period to avoid a surrender charge which can be very substantial in the early years.

It's not that the annuity might not do as well as a comparable mutual fund selection . . . it's that there are more restrictions if one goes with an annuity along with slight higher expenses EVERY year.

Note: Though someone has brought up the commission issue, one needs to realize one can earn just as much commission on a mutual fund recommendation as one can with an annuity recommendation. Those who can sell variable annuities can also sell mutual funds. Also, commissions are handled a little different with an annuity than a mutual fund. In a mutual fund the commission (the load) is taken off the top and the difference invested. With an annuity, the full amount is invested . . . the commission is NOT taken out (the primary reason for the surrender charge period . . .which acts like a deferred load that declines over the period and eventually goes away).
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First, to get her paws on the 401K, she would have to leave her job. If she does that, the 401K funds can be rolled in to a self directed IRA without taxes and penalties.

Since both IRA's and 401k's are tax deferred investment vehicals, it makes no sense to invest those funds into tax deferred investment such as an anuity. There is no upside and only downside.

If she is thinking of rolling her 401K to an IRA, and then cashing it out for 50 cents on the dollar (after taxes and penalties), and then investing the remaining money into an expensive anuity, that makes even less sense. She will be much poorer and the insurance company much richer.

There are circumstances where investing in an annuity makes financial sense. Funding it with a 401k or IRA usually does not.
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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.

BGP
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