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Deferred Annuity

Posted: Tue Apr 25, 2017 1:28 pm
by dragant
What is a Deferred Annuity? The reason I am asking is for my parents. I am helping to sort out their investment portfolio. They use Fidelity. I have already moved their investments to 3 Spartan funds: FSTVX (Fidelity Total Stock Market Index), FSGDX (Fidelity Global Ex US), and FSITX (Fidelity US Bond Index). However, I don’t know how to start on their Deferred Annuity Account. Below is list of positions they currently hold:
Symbol Description
FBBLC Fidelity VIP High Income (9060)
FJBAC Fidelity VIP Balanced (9069)
FKMSC Fidelity VIP Value (9079)
FNBSC Fidelity VIP Mid Cap (9071)
FPDFC Fidelity VIP Contrafund (9065)
FTLKC Fidelity VIP Inv Grade Bond (9063)

Should I sell these? Should I keep them? How does one evaluate Deferred Annuities? Any help would be appreciated.

Re: Deferred Annuity

Posted: Tue Apr 25, 2017 3:09 pm
by kenner
Generally, deferred annuities are investments that can postpone income tax consequences.

The current age and marginal income tax bracket of the annuity owner who is selling is relevant.

Deferred annuities are often poor investments due to high long-term costs.

This Fidelity link may be helpful:

https://www.fidelity.com/annuities/what ... &gclsrc=ds

Re: Deferred Annuity

Posted: Tue Apr 25, 2017 4:50 pm
by Dottie57
I think of annuities as a way to create an income stream with insurance against running out of money.

I will likely purchase an immmediate annuity to provide a base increase me along with Social Security.

Re: Deferred Annuity

Posted: Tue Apr 25, 2017 5:08 pm
by NotWhoYouThink
Is the annuity in an IRA or in a taxable account? What is the exact name of the annuity? When did they buy it?

In general, annuities tend to have high fees and other undesirable features that would make people on this board discourage you from buying one. But if your parents have already bought it, the question becomes what to do with it? The specifics on this particular annuity are needed before anyone can advise reasonably on that.

Oh, and how old are your parents? What other investments do they have? When will they need to start drawing on this money?

Re: Deferred Annuity

Posted: Tue Apr 25, 2017 7:36 pm
by dragant
1. My dad is 74 years old and my mom is 71 years old.
2. They are comfortably living in India off their social security income.
3. They have to withdraw money from their IRA accounts. They reinvest the money in taxable accounts.
4. The deferred annuities are not in IRA accounts. I believe they are taxable accounts.

They bought it years ago...not sure when exactly but I will try to find out. The specific annuities were listed in the table.

Re: Deferred Annuity

Posted: Wed Apr 26, 2017 4:34 am
by Bogle_Feet
Putting money into a deferred annuity (SPIA, index annuity or other annuity that is annuitized) is like deciding that taking a vacation at age 65 is more important than having food and shelter at age 85. That's what these annuity products do. They give you higher income ONLY to start, eventually being dwarfed by inflation and easily beaten by a low risk mix of traditional investments later. Heirs get nothing and the insurance company keeps everything.

Re: Deferred Annuity

Posted: Wed Apr 26, 2017 9:18 am
by Oicuryy
dragant wrote:What is a Deferred Annuity?
To really know what a deferred variable annuity is you need to read the prospectus. I'm guessing this is the one your parents have.
http://fundresearch.fidelity.com/prospe ... &critical=

Ron

Re: Deferred Annuity

Posted: Wed Apr 26, 2017 12:46 pm
by kenner
Here's information from an article on the internet that might be of some help in your decision-making process (I am assuming this article is based on US tax laws and I have have no opinion on whether this information is accurate):

"Getting Out of an Annuity That is NOT an IRA

If you own a variable annuity that is not inside of an IRA or another type of retirement account such as a 403(b), before you cancel the annuity, for tax purposes, you will need to find out if your annuity has a gain or a loss.

To do this, first, you will need to know your annuity’s cost basis. The cost basis is the total amount of money you put into the annuity. If you don’t know the cost basis, call the customer service number on your statement and ask. Next, compare your cost basis to the current value of your variable annuity.

If there is a gain - If your annuity has a gain, and you cash in the annuity, you will pay ordinary income taxes on any gain. If there is a large gain in your annuity, instead of cashing in the annuity, you can exchange it (called a 1035 exchange) for a no-load variable annuity that has lower expenses. Vanguard, for example, offers such a low fee annuity. If your annuity has a minimal gain, you may wish to cash in the annuity and use the funds to invest in other lower cost alternatives by opening a mutual fund or brokerage account.

If there is a loss - If the current value of your variable annuity is lower than the cost basis, you have a loss. If you cancel the annuity, you may be able to claim that loss on your tax return. Be cautious of canceling a variable annuity that has a loss, as in these cases the death benefit on the annuity may be at least equal to your cost basis, so by canceling the annuity, you would be foregoing some level of death benefit."

Obviously, only you and your parents are in a position to determine whether it is beneficial for them (and you, for estate planning purposes) to exit their deferred annuity situation, though if you provide more information, we may be able to provide further guidance. Tax consequences can be very important in such an analysis. Generally, other investment options, such as the ones you have apparently successfully recommended to your parents (low-cost three-fund portfolio), are likely better options in the long term.