Help with Variable Annuity and M&E costs

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Topic Author
Katietsu
Posts: 3030
Joined: Sun Sep 22, 2013 1:48 am

Help with Variable Annuity and M&E costs

Post by Katietsu » Wed Mar 25, 2020 2:16 pm

I have an inherited variable annuity. The living spouse of the deceased also has a piece of the inherited variable annuity as well as their own “matching” original annuity.

This drop in equities has provided a good opportunity to get out without the same tax consequences. I am trying to figure out the costs for both myself and my relative so I can decide what level of drop is needed to make the tax hit worthwhile.

The annual fee is clearly on the statement (only $30/yr).
The expenses for each fund are clearly shown in the prospectus where there is about 0.3%-0.5% extra compared to a similar fund at Fidelity or Vanguard.
Here is where I get confused. The financial planner responded to my question about fees at the time of the inheritance with an email stating that there was a 1.25% mortality expense and a 0.15% administrative fee. These do not show up anywhere on any statement for the inherited annuities. I have not looked at the annuity statement for the contract still owned by the surviving spouse.

Do the M&E costs still apply after transfer to the beneficiaries? Should I be able to “see” them anywhere?

Edward Joseph
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Joined: Fri Aug 11, 2017 9:52 am

Re: Help with Variable Annuity and M&E costs

Post by Edward Joseph » Wed Mar 25, 2020 2:22 pm

Yes, the M&E costs will still apply. They typically won’t be listed on the quarterly statement. You’ll have to call the insurance carrier and attain a copy of the contract package or a summary page. The Advisor may also able to provide this to you as well.

bsteiner
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Location: NYC/NJ/FL

Re: Help with Variable Annuity and M&E costs

Post by bsteiner » Wed Mar 25, 2020 2:30 pm

There is usually no good solution to a variable annuity.

In addition to the fees, if you keep it, you'll continue to convert dividends and capital gains to ordinary income.

If you cash it in all at once you'll bunch the income.

Often the least bad choice is to take it over 5 years.

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HueyLD
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Re: Help with Variable Annuity and M&E costs

Post by HueyLD » Wed Mar 25, 2020 2:53 pm

Katietsu wrote:
Wed Mar 25, 2020 2:16 pm
I have an inherited variable annuity. The living spouse of the deceased also has a piece of the inherited variable annuity as well as their own “matching” original annuity.

This drop in equities has provided a good opportunity to get out without the same tax consequences. I am trying to figure out the costs for both myself and my relative so I can decide what level of drop is needed to make the tax hit worthwhile.

The annual fee is clearly on the statement (only $30/yr).
The expenses for each fund are clearly shown in the prospectus where there is about 0.3%-0.5% extra compared to a similar fund at Fidelity or Vanguard.
Here is where I get confused. The financial planner responded to my question about fees at the time of the inheritance with an email stating that there was a 1.25% mortality expense and a 0.15% administrative fee. These do not show up anywhere on any statement for the inherited annuities. I have not looked at the annuity statement for the contract still owned by the surviving spouse.

Do the M&E costs still apply after transfer to the beneficiaries? Should I be able to “see” them anywhere?
Katie,

The annuity specific charges are typically accrued daily and taken out of the NAV of your account value. Such charges are in addition to the usual mutual fund ER that are charged against the daily NAV.

You can do a 1035 exchange to Vanguard VA if you want to continue to own the VA. Or you can withdraw 100% and pay income tax on the earnings and 10% penalty if under 59 1/2. Depending on the amount of earnings, it may be a good time to exit the VA. However, do ask if any surrender or exchange fees apply.

Good luck.

Topic Author
Katietsu
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Joined: Sun Sep 22, 2013 1:48 am

Re: Help with Variable Annuity and M&E costs

Post by Katietsu » Wed Mar 25, 2020 4:01 pm

I have taken a couple of RMDs. I had always planned to cash it in when equities dipped (or at retirement should that have come first.). I pulled out the papers to look at it last weekend and had a conversation with the other relative who inherited. Of course, the financial advisor told them there were “not many fees” with this annuity.

I started looking for the fees, both to make sure I should still be cashing it in for myself and to show my relative. I could not find anything that showed M & E/administrative fees. I did, however, find the email that stated that they were 1.4%. I particularly did want to make mistake if I go ahead and give a fee estimate to my relative that is somewhat contradictory to the “not many fees” comment of trusted advisor. Of course, in my search for this answer before posting, I did see people post about fees that added up to 3%, 4% or even more than 5%, so I guess this one could be considered cheap in comparison.

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HueyLD
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Re: Help with Variable Annuity and M&E costs

Post by HueyLD » Wed Mar 25, 2020 4:08 pm

All charges and fees should be shown in the prospectus. You can do an online search and find the prospectus, or you may ask the FA for a prospectus.

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