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I have an IRA with General American for some years now. Since it is only earning a 6% interest, I have been advised to draw the money, pay the penalty and invest it some other type of IRA with companies earning at least 10% to 12% interest. I would have to pay the penalty which I have not found out yet, but was told it would be about $2000. or more. I am also told I would make it back within the year. Should I just leave it there making 6% or do the chances of recovering the money lost for the penalty ok? Please reply,

TIES
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<< pay the penalty >>

What's the penalty? Is this a back-end load?

<< I am also told I would make it back within the year. >>

How? Do you already have companies or funds which you are confident will have a much higher return? There are no guaranteeds, just more thorough research.

FWIW, If you're investing in GAM, it looks like it's matching the S&P...
http://finance.yahoo.com/q?s=GAM&d=1ys


Washu! ^O^
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I have an IRA with General American for some years now. Since it is only earning a 6% interest, I have been advised to draw the money, pay the penalty and invest it some other type of IRA with companies earning at least 10% to 12% interest. I would have to pay the penalty which I have not found out yet, but was told it would be about $2000. or more. I am also told I would
make it back within the year. Should I just leave it there making 6% or do the chances of recovering the money lost for the penalty ok? Please reply,

TIES

If you are transferring from one IRA to another there are no Tax consequences or penalties. There may be Load fees charged by the fund (Great American) and If your IRA is in the 100,000 range a $2000 load fee would probably be in line (2%) depending on How long you have been in the fund so far. If this is close to your situation then yes you should be able to recover from the backload/penalty within the year.
If your IRA is in the 5000/10,000 range and the $2000 is penalty and income tax on the mone then no you probably will not recover the money but doing a IRA > IRA transefer would not have those consequences.
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Reading between the lines a bit, it sounds like you may be talking about an annuity at General American and the penalties are really surrender charges.

Your first action should be to check with General American to see if your annuity contract has other investment options. Some will allow you simply to switch to something based on stocks or even an S&P Index option rather than the "fixed income" option you apparently have now. This switch may not require payment of surrender charges.

You need to clarify what your surrender charges are. Most decrease or are eliminated after some time frame. With this information and the expected return on your new investment, you can easily calculate how long it will take the new earnings stream to pay back your surrender charges. If less than 3 years, I would make the change. Otherwise, wait.

There is an Annuities board in the Speakers Corner board where you will find some of these issues discussed. There is something called at 1035 transfer that much like an IRA allows you to move your annuity from the present one to another one without paying tax penalties. Vanguard, Scudder, T Rowe Price, and Fidelity offer low fee/surrender charges annuities that may offer better performance.

An S&P Index fund averages a return of 12%. That would be Fools first choice for the investment option to look for in your future annuity.
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