Annuity in IRA for 85yr old

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Regina00
Posts: 18
Joined: Mon Jan 29, 2018 10:01 pm

Annuity in IRA for 85yr old

Post by Regina00 »

Hi Bogleheads, I'm reaching out as I respect the input of this group more than any other. My father in law is 85 with Dementia at a facility. My mother in law, 82,has POA. Years back they got sold into an annuity and put in his IRA. Although I fell that's a horrible idea it was done before I met them. The death benefit is currently 129k with a current cash value of 35k. The plan had a 6% rollup to age 85. Now that he reached that threshold the annual ratchet to age 85 ends. So the fees on the account are now $5723 a year. Ridiculous! With no increases in the cash value the fees will wipe the account down to zero in likely 5-6 years. So then the death benefit will cease as no more funds will be available to pay the premium. Being in the IRA restricts him from paying for the life insurance from other sources.
The problem is my in laws expected that if she drains their other funds for his care 7k a month, she will have the life ins left after he passes to help her financially survive. His health is good otherwise. So nobody knows how long he may survive but this new discovery is a shock. I tried to get her to do some estate planning in dividing their assets. Primarily so the 5 yr lookback by Medicaid would leave her some resources to maintain her expenses after he passes- she didn't want to see him on Medicaid if she could avoid, even if she ended herself on Medicaid- but that was before in thinking that the life ins would cushion initially her needs. Any wisdom if I'm missing on some actions you see them possibly exploring? Maybe this yr not taking RMD of 5k( under Cares Act) to keep cash value up for an extra yr of covering IRA/ Annuity fees?
They own house JT with 0 mge, valued at 425k
He is a Vet getting meds covered.
SS him 21k and her 8k; Pension of 12k.
Thank you in advance.
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Stinky
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Re: Annuity in IRA for 85yr old

Post by Stinky »

Regina00 wrote: Fri May 29, 2020 9:54 am Hi Bogleheads, I'm reaching out as I respect the input of this group more than any other. My father in law is 85 with Dementia at a facility. My mother in law, 82,has POA. Years back they got sold into an annuity and put in his IRA. Although I fell that's a horrible idea it was done before I met them. The death benefit is currently 129k with a current cash value of 35k. The plan had a 6% rollup to age 85. Now that he reached that threshold the annual ratchet to age 85 ends. So the fees on the account are now $5723 a year. Ridiculous! With no increases in the cash value the fees will wipe the account down to zero in likely 5-6 years. So then the death benefit will cease as no more funds will be available to pay the premium. Being in the IRA restricts him from paying for the life insurance from other sources.
The problem is my in laws expected that if she drains their other funds for his care 7k a month, she will have the life ins left after he passes to help her financially survive. His health is good otherwise. So nobody knows how long he may survive but this new discovery is a shock. I tried to get her to do some estate planning in dividing their assets. Primarily so the 5 yr lookback by Medicaid would leave her some resources to maintain her expenses after he passes- she didn't want to see him on Medicaid if she could avoid, even if she ended herself on Medicaid- but that was before in thinking that the life ins would cushion initially her needs. Any wisdom if I'm missing on some actions you see them possibly exploring? Maybe this yr not taking RMD of 5k( under Cares Act) to keep cash value up for an extra yr of covering IRA/ Annuity fees?
They own house JT with 0 mge, valued at 425k
He is a Vet getting meds covered.
SS him 21k and her 8k; Pension of 12k.
Thank you in advance.
Are you sure of your numbers? The fee sounds impossibly high.

It sounds like your father has a variable annuity. I can’t imagine that a VA with a cash value of $35k would have fees of $5,723 per year. That would be 16% of cash value in fees.

I would think that the max fee would be about 3%, which would be about $1,000 per year. I would hope that you could make something approaching that on the fund, so the cash value would be about flat year to year.
It's a GREAT day to be alive - Travis Tritt
Topic Author
Regina00
Posts: 18
Joined: Mon Jan 29, 2018 10:01 pm

Re: Annuity in IRA for 85yr old

Post by Regina00 »

thanks for the input!
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fire5soon
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Re: Annuity in IRA for 85yr old

Post by fire5soon »

Stinky wrote: Fri May 29, 2020 4:09 pm
Regina00 wrote: Fri May 29, 2020 9:54 am Hi Bogleheads, I'm reaching out as I respect the input of this group more than any other. My father in law is 85 with Dementia at a facility. My mother in law, 82,has POA. Years back they got sold into an annuity and put in his IRA. Although I fell that's a horrible idea it was done before I met them. The death benefit is currently 129k with a current cash value of 35k. The plan had a 6% rollup to age 85. Now that he reached that threshold the annual ratchet to age 85 ends. So the fees on the account are now $5723 a year. Ridiculous! With no increases in the cash value the fees will wipe the account down to zero in likely 5-6 years. So then the death benefit will cease as no more funds will be available to pay the premium. Being in the IRA restricts him from paying for the life insurance from other sources.
The problem is my in laws expected that if she drains their other funds for his care 7k a month, she will have the life ins left after he passes to help her financially survive. His health is good otherwise. So nobody knows how long he may survive but this new discovery is a shock. I tried to get her to do some estate planning in dividing their assets. Primarily so the 5 yr lookback by Medicaid would leave her some resources to maintain her expenses after he passes- she didn't want to see him on Medicaid if she could avoid, even if she ended herself on Medicaid- but that was before in thinking that the life ins would cushion initially her needs. Any wisdom if I'm missing on some actions you see them possibly exploring? Maybe this yr not taking RMD of 5k( under Cares Act) to keep cash value up for an extra yr of covering IRA/ Annuity fees?
They own house JT with 0 mge, valued at 425k
He is a Vet getting meds covered.
SS him 21k and her 8k; Pension of 12k.
Thank you in advance.
Are you sure of your numbers? The fee sounds impossibly high.

It sounds like your father has a variable annuity. I can’t imagine that a VA with a cash value of $35k would have fees of $5,723 per year. That would be 16% of cash value in fees.

I would think that the max fee would be about 3%, which would be about $1,000 per year. I would hope that you could make something approaching that on the fund, so the cash value would be about flat year to year.
Often annuity fees are charged against a benefit base rather than contract value.

For example let's look at a particularly bad annuity from Jackson with a FlexDB rider. Essentially this contract will have fees based on three different values:

Contract value - the mortality & expense fee (M&E), administrative, and subaccount fees are based on this.

Living benefit base - this is the value from which the income rider fees are based on. This value does not go down as you draw the contract value down (unless an "excess" withdrawal is taken) thus the fee remains high even though the contract value being drawn down.

Death benefit base - the death benefit for this product is the original premium as long as the contract still has value. So if the original premium was $100k the death benefit fee would be based $100k even if the contract value was much less.

This is a fairly basic explanation of the fee structure, but is meant to show how fees can be a very high percentage of the contract value. Sorry if the formatting is off as I'm typing this on a phone.
A man is a success if he gets up in the morning and gets to bed at night, and in between he does what he wants to do. - Bob Dylan
Topic Author
Regina00
Posts: 18
Joined: Mon Jan 29, 2018 10:01 pm

Re: Annuity in IRA for 85yr old

Post by Regina00 »

That was very helpful and informative. Thanks!
muddlehead
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Re: Annuity in IRA for 85yr old

Post by muddlehead »

Simpleton me wants to know why you don't take the 35k cash value out of the IRA. Pay the taxes due once it's added to the other income - soc sec, pension - 41k - making the income 76k (with, I think, not all of the soc sec taxable).
Topic Author
Regina00
Posts: 18
Joined: Mon Jan 29, 2018 10:01 pm

Re: Annuity in IRA for 85yr old

Post by Regina00 »

Basically the 35k cash value has the 130k plus death benefit still. With the fees so high it will dry up the balance by 5-6 years, thus leaving nothing to pay the premiums. So not taking the 35k now will give her some protection in the event he passes in next few years, I did suggest though that this year she forgo her RMD( CPA said this was eligible one time this year due to Tax Act passed last year) from that account to cushion the balance a little and prolong the fees draining the account. I hope that makes sense. Thanks for the response.
crefwatch
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Re: Annuity in IRA for 85yr old

Post by crefwatch »

Regina00, is this product an "annuity" or is it something like "Universal Life Insurance?" There's a big difference.

And we'd like to know how the premiums have been getting paid in the past. I am aware than ULI often has a single, purchase premium that produces (internal) income against which a long list of hard-to-understand-and-predict costs are assessed. As another noted, you need to be really sure you understand what is happening. I avoid ULI myself, but it's still hard to believe that the NET annual costs of the product, whatever it is, are that number annually. Is the predatory agent still around?
bayview
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Re: Annuity in IRA for 85yr old

Post by bayview »

Bump (trying to evaluate my mom’s VAs) :confused
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri
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Stinky
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Re: Annuity in IRA for 85yr old

Post by Stinky »

bayview wrote: Sun Jul 26, 2020 2:46 pm Bump (trying to evaluate my mom’s VAs) :confused
Have you posted your moms VA information?

If not, please start a new thread to get your best input.
It's a GREAT day to be alive - Travis Tritt
bayview
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Re: Annuity in IRA for 85yr old

Post by bayview »

Stinky wrote: Sun Jul 26, 2020 2:50 pm
bayview wrote: Sun Jul 26, 2020 2:46 pm Bump (trying to evaluate my mom’s VAs) :confused
Have you posted your moms VA information?

If not, please start a new thread to get your best input.
No, I haven’t, and I wasn’t planning to ask in this thread. I was merely explaining the reason for the bump (gathering general info.)
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri
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