"Tax advantaged Annuity" advised for friend

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Wenonah
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"Tax advantaged Annuity" advised for friend

Post by Wenonah » Mon Nov 11, 2019 10:28 pm

My friend gave me permission to have the Bogleheads ask questions and critique a possible move she may make. She has found a new advisor, and he is suggesting she put $270,000.00 into a "tax advantaged annuity." This is l/5 of her savings and she has a pension, social security, and rent from 2 houses coming in, so she has enough to live on from that. The money is to build a house on a lot she owns and to pay for her son's college. The money is from her deceased husband's life insurance policy and is currently in an annuity that is locked in, earning 2.8% a year and she can take out 10,000.00 a year. She has taken 50,000 out of the taxable interest. It is non taxable because it was a life insurance policy. She is a conservative investor. Wondering about the fees, etc of this move?

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Wenonah
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Re: "Tax advantaged Annuity" advised for friend

Post by Wenonah » Mon Nov 11, 2019 10:30 pm

Oh, and she is 65, but has very long life spans in her family and is in excellent health.

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Re: "Tax advantaged Annuity" advised for friend

Post by dru808 » Mon Nov 11, 2019 10:33 pm

The 270k is to build a house and put her child through college? In the near future?

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FiveK
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Re: "Tax advantaged Annuity" advised for friend

Post by FiveK » Mon Nov 11, 2019 10:38 pm

Wenonah wrote:
Mon Nov 11, 2019 10:28 pm
...currently in an annuity that is locked in, earning 2.8% a year and she can take out 10,000.00 a year.
What does "locked in" mean?

Usually the best reaction to annuities suggested by a "financial advisor" is to run far, far away. Don't know enough about this one to suggest otherwise.

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Wenonah
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Re: "Tax advantaged Annuity" advised for friend

Post by Wenonah » Mon Nov 11, 2019 10:39 pm

Yes, very near future....can't she just roll this over into an IRA and avoid fees? She already has a Roth with Schwab.

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Re: "Tax advantaged Annuity" advised for friend

Post by Wenonah » Mon Nov 11, 2019 10:56 pm

I need some savvy people to ask me questions for her, so she does the right thing with this money! Thanks!

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Re: "Tax advantaged Annuity" advised for friend

Post by billfromct » Mon Nov 11, 2019 11:37 pm

To make sure I understand the situation.

-husband passed away & your friend received $270k from a life insurance policy
-$270k is now invested in an annuity (sounds like a financial advisor/sales person made a good commission selling this)
-now another financial advisor/sales person wants to sell her a "tax advantaged annuity" (probably a good commission for this sales person)

Short term money (1-5 years) to build a house/pay for college should be put in a short term fixed income investment never into an annuity. Annuities should only be used for long term (40-50 year) retirement savings.

She needs a fee only (hourly or lump sum charge), not a sales person.

bill

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Re: "Tax advantaged Annuity" advised for friend

Post by FoolStreet » Mon Nov 11, 2019 11:51 pm

Wenonah wrote:
Mon Nov 11, 2019 10:28 pm
My friend gave me permission to have the Bogleheads ask questions and critique a possible move she may make. She has found a new advisor, and he is suggesting she put $270,000.00 into a "tax advantaged annuity." This is l/5 of her savings and she has a pension, social security, and rent from 2 houses coming in, so she has enough to live on from that. The money is to build a house on a lot she owns and to pay for her son's college. The money is from her deceased husband's life insurance policy and is currently in an annuity that is locked in, earning 2.8% a year and she can take out 10,000.00 a year. She has taken 50,000 out of the taxable interest. It is non taxable because it was a life insurance policy. She is a conservative investor. Wondering about the fees, etc of this move?
We don’t recommend annuities or the salesmen who sell them. Suggest your friend reads a book on Bogleheaded investing, from the library or $20 from the bookstore. Put the money in the bank until she reads the book or reads the wiki on this site.

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Re: "Tax advantaged Annuity" advised for friend

Post by dru808 » Mon Nov 11, 2019 11:57 pm

billfromct wrote:
Mon Nov 11, 2019 11:37 pm
To make sure I understand the situation.

-husband passed away & your friend received $270k from a life insurance policy
-$270k is now invested in an annuity (sounds like a financial advisor/sales person made a good commission selling this)
-now another financial advisor/sales person wants to sell her a "tax advantaged annuity" (probably a good commission for this sales person)

Short term money (1-5 years) to build a house/pay for college should be put in a short term fixed income investment never into an annuity. Annuities should only be used for long term (40-50 year) retirement savings.

She needs a fee only (hourly or lump sum charge), not a sales person.

bill

Not sure how you deciphered all of that. Bravo 👏

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Re: "Tax advantaged Annuity" advised for friend

Post by FiveK » Tue Nov 12, 2019 12:08 am

Wenonah wrote:
Mon Nov 11, 2019 10:56 pm
I need some savvy people to ask me questions for her, so she does the right thing with this money! Thanks!
What does "locked in" mean?

Re: "...taken 50,000 out of the taxable interest. It is non taxable...." What is taxable to her and what isn't?

Has she annuitized this policy or is it still in the accumulation phase?

If still in the accumulation phase, is she still subject to a surrender fee schedule? If so, what is it?

If already annuitized, is there a "period certain"?

Does she consider either advisor a personal friend, or will she look at this from a "strictly business" perspective?

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Re: "Tax advantaged Annuity" advised for friend

Post by Wenonah » Tue Nov 12, 2019 12:16 am

Just got some more information:
From her:
"It is in an annuity. I am considering converting it to a tax advantaged annuity. The taxes I owe in the interest earned is spread over the lifetime of the annuity. Right now, every time I make a withdrawal I get taxed on everything until I am down to the $250k initial principal."

Also, she got more than that from her life insurance policy a few years ago, but has 270 left and has used the rest to pay off her house and two rentals.

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Wenonah
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Re: "Tax advantaged Annuity" advised for friend

Post by Wenonah » Tue Nov 12, 2019 12:23 am

billfromct:
"Short term money (1-5 years) to build a house/pay for college should be put in a short term fixed income investment never into an annuity. Annuities should only be used for long term (40-50 year) retirement savings."

Basically just a money market or short term CDs??

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FiveK
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Re: "Tax advantaged Annuity" advised for friend

Post by FiveK » Tue Nov 12, 2019 12:50 am

Wenonah wrote:
Tue Nov 12, 2019 12:23 am
billfromct:
"Short term money (1-5 years) to build a house/pay for college should be put in a short term fixed income investment never into an annuity. Annuities should only be used for long term (40-50 year) retirement savings."

Basically just a money market or short term CDs??
Pretty much.

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FiveK
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Re: "Tax advantaged Annuity" advised for friend

Post by FiveK » Tue Nov 12, 2019 1:00 am

Wenonah wrote:
Tue Nov 12, 2019 12:16 am
Just got some more information:
From her:
"It is in an annuity. I am considering converting it to a tax advantaged annuity.
All annuities are "tax advantaged" in that gains are not taxed until withdrawn - as opposed to a taxable account in which interest and dividends are taxed annually.

All annuities are "tax disadvantaged" in that, when withdrawn, all gains are taxed at ordinary income rates - as opposed to a taxable account in which capital gains are taxed at lower rates.
The taxes I owe in the interest earned is spread over the lifetime of the annuity. Right now, every time I make a withdrawal I get taxed on everything until I am down to the $250k initial principal.
It appears she is considering (or the advisor wants her) annuitizing the contract. At that point she gives up all rights to the initial principal and unwithdrawn gains in return for some regular monthly payment.

Does she know how long she would have to live until those regular payments equal the amount she is giving up?

What is the current account balance (in other words, how much unwithdrawn interest has it accumulated above the $250K principal)?

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Wenonah
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Re: "Tax advantaged Annuity" advised for friend

Post by Wenonah » Tue Nov 12, 2019 1:17 am

She has 270,000 right now. Principal was 250,000 10 years ago and she has taken 50,000.00 out. I guess the surrender charges end in March of 2020. So at that point, wouldn't it make sense to put it in a money market since she plans to use it. Somehow the advisor is supposed to be helping her with her taxes...I think she will explain that theory to me in the morning. Thanks everyone for helping. I'll be back in the a.m.

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Re: "Tax advantaged Annuity" advised for friend

Post by Tal- » Tue Nov 12, 2019 1:25 am

I would not advocate an annuity in this case.

If I understand - she is 65 and has 270K in an annuity today generating 2.8%. I am inferring that this was funded by a life insurance settlement, and is not in a 401k (may be worth verifying with your friend).

She has two plans for the 270K: A new home and helping kids with college. Both of these will happen in the next few years.

She is considering converting the current annuity into a different annuity so that she doesn't have to pay taxes on the 2.8% interest.

Is all of that correct?

If so, an annuity is probably not the best choice for a few reasons:

1: Taxes. A benefit of an annuity can be tax deferral. This can be done by either punting on taxes until you take money out (she would still owe the taxes, it would just be when the money is withdrawn), or by having the $10,000 taken out each year be part principle and part interest (again, she still owes the same taxes, but gets to delay paying them because some of the 270K will become interest instead of principle). If she had a very high income from other assets (north of 100K/year), or a very long time horizon, more info would be needed. As is, the tax benefit seems minimal - probably a few hundred bucks with this amount and a five year period.

2: Annuities are expensive. Annuities do a great job of hiding their fees, but trust me - they're there! I'd wager a dollar-to-donuts that these fees would be higher than any tax savings.

3: Annuities complicate things. Annuities are often complicated with rules about how much you can take out over set periods of time. Other options (savings accounts, CDs, investment accounts, etc.) are much more flexible and transparent.

I'll assume good intent from the investment advisor, and assume that your friend expressed anxiety about the taxes and the advisor was trying to address that. But, I wouldn't suggest the move...

Just my two cents.
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Re: "Tax advantaged Annuity" advised for friend

Post by Cyclesafe » Tue Nov 12, 2019 4:19 am

Using its lower fees as rationale, convince your friend to 1035 transfer to Vanguard (if she still can as Vanguard is passing administration of investment annuities to Transamerica by December 2020). There she will get honest advice.

Her current advisor's "advice" is not in her current best interest. She should withdraw to the top of her bracket every year until she gets down to basis, then withdraw that tax free. Anywhere along the line she can annuitize the balance if she thinks she might prefer the insurance aspects of an income annuity over the substantial financial advantage of a series of withdrawals. (Ameliorating longevity and financial abuse risk.)

This is what I have done to make the best out of a bad situation.
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Re: "Tax advantaged Annuity" advised for friend

Post by DarkHelmetII » Tue Nov 12, 2019 5:33 am

Is there risk tolerance for a conservatively tilted balanced portfolio such as 75% intermediate US treasures and 25% US stock market? Since 1972 max drawdown is under 10% and worst year down around 3%: https://www.portfoliovisualizer.com/bac ... tion2_1=75.

Bond income exempt from state tax. Equities growth and dividends and capital gains rates (assuming qualified dividends). Point is there are tax-efficient, low cost alternatives to annuities that, at least looking backward, don't have gut-wrenching downturns but still have reasonable expectation to grow in value over time.

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Re: "Tax advantaged Annuity" advised for friend

Post by RickBoglehead » Tue Nov 12, 2019 5:38 am

She is 65 and has a son not yet in college?
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Re: "Tax advantaged Annuity" advised for friend

Post by z3r0c00l » Tue Nov 12, 2019 7:15 am

Short term money belongs in a CD that matches the amount of time before spending or a bank account. Almost no money belongs in an annuity and since she was scammed once, I would advise her not to get scammed again. She has three solid streams of income for retirement and so, even the only good kind of annuity isn't appropriate here. It also confuses me when people fall for annuities and other hotshot sales pitches. If you went in for an oil change and a used car salesperson walked up to you out of the blue and tried to sell a car, would you say yes? Well this is 20X the size of a used car and even less useful.

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Re: "Tax advantaged Annuity" advised for friend

Post by EHEngineer » Tue Nov 12, 2019 9:17 am

This post makes me sad. OPs friend has been swindled by financial advisor(s) who have scared her about "taxes" while siphoning fees & commissions.

OP,
If your car has a hole in the gas tank, fuel economy is not your issue.
If your friend has a financial advisor selling her annuities, taxes are not her issue.
The advisor is taking more in fees than she will pay in taxes.

Her money should be in a 2% savings account, a bank CD, or a conservative investment like Vanguard Target Retirement Income Fund.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

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Re: "Tax advantaged Annuity" advised for friend

Post by Wenonah » Tue Nov 12, 2019 11:13 am

Good insights. Another thing she just told me is that annuities are safe from market fluctuations,so that must be a concern. I said earlier she was a conservative investor.

And yes, to the comment about age and the college student. It's all good. College did not happen at 18; paths are different; people have children at different ages.

Do folks agree with this?
"Using its lower fees as rationale, convince your friend to 1035 transfer to Vanguard (if she still can as Vanguard is passing administration of investment annuities to Transamerica by December 2020). There she will get honest advice.

Her current advisor's "advice" is not in her current best interest. She should withdraw to the top of her bracket every year until she gets down to basis, then withdraw that tax free. Anywhere along the line she can annuitize the balance if she thinks she might prefer the insurance aspects of an income annuity over the substantial financial advantage of a series of withdrawals. (Ameliorating longevity and financial abuse risk.)"

In order to move her money to something with lower fees, like below, should she do a 1035 transfer? She is with Schwab for something else, they could do it too. Any objections to schwab?

"Her money should be in a 2% savings account, a bank CD, or a conservative investment like Vanguard Target Retirement Income Fund."

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Re: "Tax advantaged Annuity" advised for friend

Post by Mel Lindauer » Tue Nov 12, 2019 11:20 am

OMG, another "shark attack". That is such a horrible recommendation. It makes me sick to learn that yet another insurance salesman is trying to take advantage of an unsuspecting, unsophisticated widow to line his pockets with an inappropriate high-commission product. And you and your friend need to understand that when you invest in a variable or fixed annuity, there are surrender fees that can last five, seven or even more years if you take the money out. That's criminal to suggest something like that when there are short term needs, meaning that there's an almost certainly that she'll have to pay the surrender fees.

As others have pointed out, short-term needs should be invested in safe, short-term things like cash, CDs and perhaps high-quality, short-term bonds.

As for the college education funds, if that's a bit further in the future, she might consider putting those funds in a low-cost 529 Plan, such as those offered by Vanguard, where all the gains are tax-free when used for qualifying educational expenses.

And, from you last post, this sounds like an equity-indexed annuity which is the worst of all of them. Here's a link to a Forbes column I did some time ago about these horrible things:

https://www.forbes.com/2010/08/10/truth ... f97f0f1257

Tell your friend to put her running shoes on and run away from this as fast as she can.
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Re: "Tax advantaged Annuity" advised for friend

Post by NotWhoYouThink » Tue Nov 12, 2019 11:24 am

There was an old thread here viewtopic.php?t=256429 about what to do with life insurance payouts. Maybe others here who have had the misfortune to receive life insurance payouts can help fill in some gaps. When you get your payout the insurance company often offers 3 options
- keep the payout with them, and they will pay some interest amount, and you can withdraw some but there are limitations - with older whole-life policies, this can be a good option
- buy an annuity from the life insurance company
- if you really really insist and are sure, they will send you a check.

From your statements, I'm not really sure whether your friend chose the first or second option. She may have chosen the first, 2.8% sounds about in line with what I have heard.

Now someone is trying to sell her an annuity. As others have said, that is bad for her and good for the salesman. She will need to check what exactly she has with the original life insurance company. In other words, you can help her but she has to help you do it.
Last edited by NotWhoYouThink on Tue Nov 12, 2019 11:51 am, edited 1 time in total.

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Re: "Tax advantaged Annuity" advised for friend

Post by Wiggums » Tue Nov 12, 2019 11:29 am

FiveK wrote:
Tue Nov 12, 2019 12:50 am
Wenonah wrote:
Tue Nov 12, 2019 12:23 am
billfromct:
"Short term money (1-5 years) to build a house/pay for college should be put in a short term fixed income investment never into an annuity. Annuities should only be used for long term (40-50 year) retirement savings."

Basically just a money market or short term CDs??
Pretty much.
I agree

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Re: "Tax advantaged Annuity" advised for friend

Post by JediMisty » Tue Nov 12, 2019 11:34 am

Mel Lindauer wrote:
Tue Nov 12, 2019 11:20 am
OMG, another "shark attack". That is such a horrible recommendation. It makes me sick to learn that yet another insurance salesman is trying to take advantage of an unsuspecting, unsophisticated widow to line his pockets with an inappropriate high-commission product. And you and your friend need to understand that when you invest in a variable or fixed annuity, there are surrender fees that can last five, seven or even more years if you take the money out. That's criminal to suggest something like that when there are short term needs, meaning that there's an almost certainly that she'll have to pay the surrender fees.

As others have pointed out, short-term needs should be invested in safe, short-term things like cash, CDs and perhaps high-quality, short-term bonds.

As for the college education funds, if that's a bit further in the future, she might consider putting those funds in a low-cost 529 Plan, such as those offered by Vanguard, where all the gains are tax-free when used for qualifying educational expenses.

And, from you last post, this sounds like an equity-indexed annuity which is the worst of all of them. Here's a link to a Forbes column I did some time ago about these horrible things:

https://www.forbes.com/2010/08/10/truth ... f97f0f1257

Tell your friend to put her running shoes on and run away from this as fast as she can.
Thanks for the link to your article. I'm at a loss to explain to friends why to avoid these products. I'm not the OP, but really appreciate it!

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Re: "Tax advantaged Annuity" advised for friend

Post by Wiggums » Tue Nov 12, 2019 11:38 am

Mel Lindauer wrote:
Tue Nov 12, 2019 11:20 am
OMG, another "shark attack". That is such a horrible recommendation. It makes me sick to learn that yet another insurance salesman is trying to take advantage of an unsuspecting, unsophisticated widow to line his pockets with an inappropriate high-commission product. And you and your friend need to understand that when you invest in a variable or fixed annuity, there are surrender fees that can last five, seven or even more years if you take the money out. That's criminal to suggest something like that when there are short term needs, meaning that there's an almost certainly that she'll have to pay the surrender fees.

As others have pointed out, short-term needs should be invested in safe, short-term things like cash, CDs and perhaps high-quality, short-term bonds.

As for the college education funds, if that's a bit further in the future, she might consider putting those funds in a low-cost 529 Plan, such as those offered by Vanguard, where all the gains are tax-free when used for qualifying educational expenses.

And, from you last post, this sounds like an equity-indexed annuity which is the worst of all of them. Here's a link to a Forbes column I did some time ago about these horrible things:

https://www.forbes.com/2010/08/10/truth ... f97f0f1257

Tell your friend to put her running shoes on and run away from this as fast as she can.
+1

I’d take a deep breath and advise your friend to stop buying any more stuff from the sales person. It’s time to develop a strategy for her short term money needs and a long term plan.

Good luck...

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Re: "Tax advantaged Annuity" advised for friend

Post by inbox788 » Tue Nov 12, 2019 11:48 am

Wenonah wrote:
Mon Nov 11, 2019 10:28 pm
... She has found a new advisor, and he is suggesting she put $270,000.00 into a "tax advantaged annuity." This is l/5 of her savings and she has a pension, social security, and rent from 2 houses coming in, so she has enough to live on from that. The money is to build a house on a lot she owns and to pay for her son's college. The money is from her deceased husband's life insurance policy and is currently in an annuity that is locked in, earning 2.8% a year and she can take out 10,000.00 a year. She has taken 50,000 out of the taxable interest. It is non taxable because it was a life insurance policy.
Wenonah wrote:
Tue Nov 12, 2019 12:16 am
"It is in an annuity. I am considering converting it to a tax advantaged annuity. The taxes I owe in the interest earned is spread over the lifetime of the annuity. Right now, every time I make a withdrawal I get taxed on everything until I am down to the $250k initial principal."

Also, she got more than that from her life insurance policy a few years ago, but has 270 left and has used the rest to pay off her house and two rentals.
Wenonah wrote:
Tue Nov 12, 2019 1:17 am
She has 270,000 right now. Principal was 250,000 10 years ago and she has taken 50,000.00 out. I guess the surrender charges end in March of 2020. So at that point, wouldn't it make sense to put it in a money market since she plans to use it.
I don't understand what type of annuity she has or is being offered. Please explain the tax advantage when you get the details. If you can get more precise information about the company and product being sold, it would be helpful. Is this 2.8% rate guaranteed for a lifetime? Is she required to make any withdrawals? Agree with the sentiment that an annuity is totally wrong for the situation, so never should have bought one and switching to another is just another big mistake.

What is her tax rate? Seems like she might be able to withdraw the original amount and just pay taxes on a small portion of interest left. What are the tax and penalties now and after March 2020? Some people foolishly keep lots of money tied up in a very low interest CD, when the only penalty is some of the interest, which is sometimes only a few dollars.

Anyway, as far as I understand, she took $250k cash (from part of life insurance settlement with no tax liabiilties) and purchased an annuity of some sort that pays 2.8% around 10 years ago (about age 55). That's about $7k interest per year, so $70k interest (non-compounded). She took out $50k of that interest (taxable) and has original $250k plus about $20k interest for total of $270k in the account. When did she take out the $50k? All at once or over what time period? All together, she only gets to spend $320k (before taxes).

If all she lost was compounded interest, that's about $10k loss, but if she's off by a year, that's $7k or more loss, so you have to make sure you're accurately comparing the years. When she took out the $50k will reduce the loss.
Total interest $80,778.92
Your savings could be worth $330,778.92 after 10 years.
If you save $0.00 per month your savings may grow to $330,778.92 after 10 years. This includes a starting balance of $250,000.00 and a 2.8% annual rate of return.
https://www.bankrate.com/calculators/sa ... -tool.aspx

FWIW, $250k 10 years ago in SP500 (1000) would have gained $500k and be worth $750k today.

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FiveK
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Re: "Tax advantaged Annuity" advised for friend

Post by FiveK » Tue Nov 12, 2019 12:51 pm

Wenonah wrote:
Tue Nov 12, 2019 11:13 am
Do folks agree with this?
"Using its lower fees as rationale, convince your friend to 1035 transfer to Vanguard (if she still can as Vanguard is passing administration of investment annuities to Transamerica by December 2020). There she will get honest advice.

Her current advisor's "advice" is not in her current best interest. She should withdraw to the top of her bracket[whatever marginal rate seems appropriate] every year until she gets down to basis, then withdraw that tax free."
Yes, with the slight modification given. Might very well be to the top of her current bracket, but it could be less if an IRMAA tier is a consideration, or it could be more if the relative tax bite would be small compared with the cost decrease available by moving the principal to a low fee provider.
In order to move her money to something with lower fees, like below, should she do a 1035 transfer? She is with Schwab for something else, they could do it too. Any objections to schwab?

"Her money should be in a 2% savings account, a bank CD, or a conservative investment like Vanguard Target Retirement Income Fund."
Schwab, Fidelity, and Vanguard can all provide low cost investment options. The devil is in the details: I'm familiar with Vanguard's annuity products but not Schwab's. If Schwab's options are comparable, then Schwab would be fine.


All the above notwithstanding, if she is in fact earning a fixed 2.8% on the annuity balance, leaving it there and withdrawing as needed would be just as good as putting the money into a 2.8% CD.

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Re: "Tax advantaged Annuity" advised for friend

Post by Stinky » Tue Nov 12, 2019 12:51 pm

I worked in life insurance for my entire career, and I’m a big believer in level term insurance, SPIAs, etc. Those products provide financial solutions that really help the consumer.

But I’m sickened when I see threads like this. The behavior of some, if not many, insurance sales folks is absolutely abhorrent. They trick people who aren’t financially savvy to buy products that aren’t right for them, and collect large commissions for their efforts.

I understand why, in the mind of many folks, “insurance sales person” is a dirty word.
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Re: "Tax advantaged Annuity" advised for friend

Post by NotWhoYouThink » Tue Nov 12, 2019 1:01 pm

Wenonah wrote:
Tue Nov 12, 2019 11:13 am

Do folks agree with this?
"Using its lower fees as rationale, convince your friend to 1035 transfer to Vanguard (if she still can as Vanguard is passing administration of investment annuities to Transamerica by December 2020). There she will get honest advice.

…...

In order to move her money to something with lower fees, like below, should she do a 1035 transfer? She is with Schwab for something else, they could do it too. Any objections to schwab?

"Her money should be in a 2% savings account, a bank CD, or a conservative investment like Vanguard Target Retirement Income Fund."
No, I don't agree with this [yet] because I believe she is not really in an annuity now, she is likely in some kind of savings/deposit account with the life insurance company that paid out the benefit. See the thread I linked to above. She may really be getting a risk-free 2.8% rate, which would be better than she can get most other places, and is not a bad place at all for her money to be if she expects to need it soon.

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Wenonah
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Re: "Tax advantaged Annuity" advised for friend

Post by Wenonah » Tue Nov 12, 2019 1:20 pm

Notwhoyouthink...I will check on exactly what she is in. Thanks for that thought.

inbox788
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Re: "Tax advantaged Annuity" advised for friend

Post by inbox788 » Tue Nov 12, 2019 1:22 pm

NotWhoYouThink wrote:
Tue Nov 12, 2019 1:01 pm
No, I don't agree with this [yet] because I believe she is not really in an annuity now, she is likely in some kind of savings/deposit account with the life insurance company that paid out the benefit. See the thread I linked to above. She may really be getting a risk-free 2.8% rate, which would be better than she can get most other places, and is not a bad place at all for her money to be if she expects to need it soon.
When I think of annuities, I generally think lifetime payments, but there are Year Certain Annuities https://www.investopedia.com/terms/y/ye ... nnuity.asp and Period Certain Annuities https://smartasset.com/retirement/perio ... in-annuity that can provide some guaranteed return. My understanding is that the rate should be higher than a CD because it's illiquid longer and isn't FDIC insured, plus I think the risk of an insurance company going bankrupt is greater than a bank going insolvent. They've never been appealing to me since the length is so long, and any additional return is minimal, not to mention the added complexity and hidden costs.

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Wenonah
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Re: "Tax advantaged Annuity" advised for friend

Post by Wenonah » Tue Nov 12, 2019 3:56 pm

It is definitely an annuity. So if i were to advise her, i would point out
1. hidden fees
2. Her money will be tied up
3. The advisor may not be getting money FROM her, but it is probably advantageous for him to put her in it
4. If there are no new fees and she gets her fixed 2.8 and the surrender charges run out in March. it may behoove her to stay...
5. But, if there are fees for withdrawal. she could do a 1035 rollover and get honest advice from Vanguard or Schwab
6. If she needs it asap, she should just be in a money market or high interest on line savings account....
Am I missing anything...other than putting on her running shoes...

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Stinky
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Re: "Tax advantaged Annuity" advised for friend

Post by Stinky » Tue Nov 12, 2019 4:44 pm

Wenonah wrote:
Tue Nov 12, 2019 3:56 pm
3. The advisor may not be getting money FROM her, but it is probably advantageous for him to put her in it
You are being way too kind to the advisor. He will make a commission of $10,000 or more if he can sell this turkey.

She is not writing a check to the advisor. But she is paying the commission through the operation of the contract.

Definitely advantageous for the advisor if she buys. Bad deal for her.
It's a GREAT day to be alive - Travis Tritt

Topic Author
Wenonah
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Re: "Tax advantaged Annuity" advised for friend

Post by Wenonah » Thu Nov 14, 2019 11:40 am

Got it. Thank you.

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