What is the best thing to do with an annuity that it is losing money?
All the funds in the retirement company are losing money. Is it better to roll it over to a self-directed traditional or a Roth IRA account?
Best Answer
2775 points
Oldman answered one year ago …
Additional answers to the other subquestions:
Never do a rolLover...instead contact a new fiduciary (IRA issuing brokerage or insurance Co.) and arrange for them to do a Custodial Transfer ---this way the funds won't have a 20% deduction for income tax withheld, and you won't have a short 60-day transfer window to get the funds redeposited, after which, they are all taxable, and un sheltered!
Secondly, be prepared for surrender charges, if this is a deferred variable annuity contract that you hold...some employee plans waive the surrender fees at employment termination...at others, it's just a small "Account Closure Fee", but cumulative surrender charges are typical: 7% on funds deposited in the current year:6% on those deposited last year...etc.
Never try to roll over a tax sheltered account directly to a ROTH, tthe taxation is on the entire deferred balance...and your income level will determine whether that's allowed (<$100K MAGI = O.K., but you'll need to pay 25+ % as tax for the year of the Roth "contribution")...It's much too complicated.
First get it to a separate IRA. Then see if it "pays" to convert.
You can only do one custodial transfer and one conversion/366 days. There are some exceptions to the time/conversion and transfer limitations, but they mainly apply to 403(b) accounts.
Be sure to download the Information (Publication) booklets regarding these rules and time limits from the IRS site.
By 2010, the income limit on conversions from IRA to Roth, for those with incomes >100K, will be removed...but marginal rates will be increased as the tax brackets revert. The possibility of someone, who has a 150K sheltered and fully taxable IRA converting to a Roth, when their current income is 101000, in 2010, seems great, especially as the conversion amount will be taxed at 75k (50%) in 2011, and 50% in 2012....but the marginal rates on this 75 K may be above 30%!
This' not generally appreciated...it isn't a free lunch...and a lot of taxes will accrue to the Feds.
Answers
269 points
stocktraderdan answered one year ago …
Consult your tax accountant and financial advisor. However, if either party sold you the annuity, consider consulting a 3rd party advisor. No one should advise you on transferring your annuity until they have reviewed your financial plan.
If however you simply want to stop the bleeding of funds. You may be able to exchange your funds for a money market fund. The funds would still be in the annuity, but you can watch from the side-lines until you feel comfortable to re-enter the market. Consult your annuity advisor for this possibility.
2775 points
Oldman answered one year ago …
There is an exchange option, called a 1035 exchange, which allows you to "sell" your annuity, and "buy" a different one from another company. I'm not familiar with your particular situation, and the fees may be high, but the "1035" option is a tax-free exchange. I would reearch this through the annuity websites, before deciding if this course of action is for you, because variable annuities have some pretty steep fees (sales costs paid to the vendor).
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