Help with Ameriprise annuity

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John21
Posts: 3
Joined: Thu Sep 13, 2018 3:19 pm

Help with Ameriprise annuity

Post by John21 » Thu Sep 13, 2018 6:06 pm

Hello everyone,

First time poster working on transferring Ameriprise accounts to Vanguard with a question regarding whether to keep an annuity or 1035 exchange to a Vanguard product.

The Ameriprise annuity is RAVA ADVANT NQ that I have held for just over 10 years. It is now worth 155K and the basis is 104k. Withdrawals can start at age 65 and it guarantees a 6% payout based on the “high-water” mark on the anniversary each year. I believe that on my death, my wife gets the principal amount. Fees are hefty, 1.05% + .65% rider + 1% average fund fee + $30 annual so let’s just call it 2.7%.

I prefer to not create a taxable event so a 1035 exchange would be in order and after a quick chat with a Vanguard rep I have a few choices. A variable annuity without a guaranteed payout which will have fees in the .6% range or adding a rider that will guarantee a 5% payout for an additional 1.1%.

I ran some numbers estimating how the 155k would grow at different interest rates, considering that the Vanguard product, in theory, should grow 1% – 2% more a year minus the high fees. Taking those numbers and then applying the 6% (Ameriprise) payout vs. the 5% (Vanguard) payout it seems like the break-even point is around 10 years. Even the “no-rider” option with a withdrawal rate of 4% did not seem to fair as well, although my calculations may be too simplistic.

Is this a case where I might be smart to keep the Ameriprise product? Surrender fees are minimal, less than $50.

Age: 58, Hope to retire before 65
MFJ 24% bracket
1 child (middle school) approx. 30k in 529 college plan
Debt 30k auto loan (3 yr. @0.9%)
Approx. 2m in various accounts, trying to simplify
Home equity 550k

Thank you!

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David Jay
Posts: 5432
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Help with Ameriprise annuity

Post by David Jay » Thu Sep 13, 2018 6:55 pm

2.7% in fees? Me, I would pay 24% taxes on the $51K and get out.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Dottie57
Posts: 4239
Joined: Thu May 19, 2016 5:43 pm

Re: Help with Ameriprise annuity

Post by Dottie57 » Thu Sep 13, 2018 7:08 pm

John21 wrote:
Thu Sep 13, 2018 6:06 pm
Hello everyone,

First time poster working on transferring Ameriprise accounts to Vanguard with a question regarding whether to keep an annuity or 1035 exchange to a Vanguard product.

The Ameriprise annuity is RAVA ADVANT NQ that I have held for just over 10 years. It is now worth 155K and the basis is 104k. Withdrawals can start at age 65 and it guarantees a 6% payout based on the “high-water” mark on the anniversary each year. I believe that on my death, my wife gets the principal amount. Fees are hefty, 1.05% + .65% rider + 1% average fund fee + $30 annual so let’s just call it 2.7%.

I prefer to not create a taxable event so a 1035 exchange would be in order and after a quick chat with a Vanguard rep I have a few choices. A variable annuity without a guaranteed payout which will have fees in the .6% range or adding a rider that will guarantee a 5% payout for an additional 1.1%.

I ran some numbers estimating how the 155k would grow at different interest rates, considering that the Vanguard product, in theory, should grow 1% – 2% more a year minus the high fees. Taking those numbers and then applying the 6% (Ameriprise) payout vs. the 5% (Vanguard) payout it seems like the break-even point is around 10 years. Even the “no-rider” option with a withdrawal rate of 4% did not seem to fair as well, although my calculations may be too simplistic.

Is this a case where I might be smart to keep the Ameriprise product? Surrender fees are minimal, less than $50.

Age: 58, Hope to retire before 65
MFJ 24% bracket
1 child (middle school) approx. 30k in 529 college plan
Debt 30k auto loan (3 yr. @0.9%)
Approx. 2m in various accounts, trying to simplify
Home equity 550k

Thank you!
This type of annuity is never fair.

Dottie57
Posts: 4239
Joined: Thu May 19, 2016 5:43 pm

Re: Help with Ameriprise annuity

Post by Dottie57 » Thu Sep 13, 2018 7:12 pm

David Jay wrote:
Thu Sep 13, 2018 6:55 pm
2.7% in fees? Me, I would pay 24% taxes on the $51K and get out.
I agree. The fees are tarrible.

John21
Posts: 3
Joined: Thu Sep 13, 2018 3:19 pm

Re: Help with Ameriprise annuity

Post by John21 » Fri Sep 14, 2018 6:04 pm

Thank you for the replies! I would consider just surrendering the annuity and taking the tax hit if it wasn't for the 10% IRS penalty. I'll continue to crunch the numbers but it looks a 1035 exchange if the best option for now and I'll readdress the issue when I'm 59 1/2.

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David Jay
Posts: 5432
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Help with Ameriprise annuity

Post by David Jay » Fri Sep 14, 2018 6:24 pm

John21 wrote:
Fri Sep 14, 2018 6:04 pm
I would consider just surrendering the annuity and taking the tax hit if it wasn't for the 10% IRS penalty.
Wait, what 10% penalty? Are you holding this inside an IRA???
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Cyclesafe
Posts: 626
Joined: Wed Dec 31, 2014 1:03 pm

Re: Help with Ameriprise annuity

Post by Cyclesafe » Fri Sep 14, 2018 6:28 pm

1035 to Vanguard and place in variable annuity subaccounts (~.45% fees) of your choice. After 59 1/2, withdraw and pay full income tax on your earnings to get your basis back. Alternatively, you can convert the balance to a SPIA after paying state premium taxes, if applicable.

John21
Posts: 3
Joined: Thu Sep 13, 2018 3:19 pm

Re: Help with Ameriprise annuity

Post by John21 » Fri Sep 14, 2018 7:30 pm

David Jay wrote:
Fri Sep 14, 2018 6:24 pm
John21 wrote:
Fri Sep 14, 2018 6:04 pm
I would consider just surrendering the annuity and taking the tax hit if it wasn't for the 10% IRS penalty.
Wait, what 10% penalty? Are you holding this inside an IRA???
No, it is not in an IRA, that would have been insult on top of injury!

It is my understanding that the IRS considers annuities as a retirement vehicle and subject to the 10% penalty if withdrawals are made before age 59 1/2 (I'm definately not a CPA though).

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Dale_G
Posts: 3082
Joined: Tue Feb 20, 2007 5:43 pm
Location: Central Florida - on the grown up side of 81

Re: Help with Ameriprise annuity

Post by Dale_G » Fri Sep 14, 2018 11:53 pm

John, the devil is always in the details. It is probably okay to keep the Rava annuity if you intend to annuitize for a period of 10 years (in order to delay SS - or for some other reason). But if you are not going to need the money, I would certainly do the 1035 exchange to Vanguard - without the rider.

Over the longer haul, the 2% difference in fees adds up. I have no idea of the fund choices in the Rava annuity, but the Vanguard annuity has excellent choices.

I owned a Vanguard Variable Annuity for about 17 years - and annuitized it 4 years ago for a fixed period. I am a happy camper.

Dale
Volatility is my friend

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