Author Topic: IRA in Annuities - not ready to retire  (Read 515 times)

Itsmylife

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IRA in Annuities - not ready to retire
« on: September 26, 2020, 03:41:44 PM »
Confession first - I was not very aware not active in managing my finances until a couple of years ago.  I am in the process of rectifying my mistakes.

As per my financial advisor's suggestion, 65K of my IRA (from previous employments) were moved to a Variable Annuity (Lincoln) about five years back.  I am 50 yrs old and have no intention retiring anytime soon.  From everything I am reading, it does not make sense for me to put my money in annuities at this point in my life.  I would like to pull out the money and put in Vanguard mutual funds or ETFs.  Is this the right move or am I better off leaving the money in annuities?

Thanks!

MDM

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Re: IRA in Annuities - not ready to retire
« Reply #1 on: September 26, 2020, 05:58:22 PM »
Most likely the right move, with a possible exception if you remain subject to a high surrender fee.  Do you know the surrender fee schedule?

See also Variable annuity - Bogleheads.

TomTX

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Re: IRA in Annuities - not ready to retire
« Reply #2 on: September 26, 2020, 07:07:13 PM »
++

While buying annuities is often a sub-optimal choice, you need to know a lot more details before making a move.

What are the terms of the annuity?

Buffaloski Boris

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Re: IRA in Annuities - not ready to retire
« Reply #3 on: September 27, 2020, 06:28:36 AM »
This is likely a sunk cost question. If someone has already paid a lot to get in or would pay a high surrender cost to get out, the best alternative might be to stay put. I’m not all that knowledgeable on annuities (I think they’re a poor investment for most so don’t look at them closely), but I believe that there are tax implications if they’re cashed out before 59 1/2. A 10% penalty on top of any taxes owed?

MDM

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Re: IRA in Annuities - not ready to retire
« Reply #4 on: September 27, 2020, 12:05:24 PM »
...I believe that there are tax implications if they’re cashed out before 59 1/2. A 10% penalty on top of any taxes owed?
Yes, if in a taxable account.  If the money stays within an IRA, the IRS will impose neither tax nor penalty.  That's separate from the surrender fee the insurance company may impose if one gets out of the annuity "too soon."

Itsmylife

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Re: IRA in Annuities - not ready to retire
« Reply #5 on: September 28, 2020, 12:13:11 PM »
I called the financial company to get more information.  If I surrender it now, I stand to lose 4%.  After 2021, I can surrender without fee - I will wait until then.

Thanks!

Gone Fishing

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Re: IRA in Annuities - not ready to retire
« Reply #6 on: September 28, 2020, 03:17:37 PM »
Assuming its value is not tied to the market, it may be worth paying the penalty and rolling it into the market if we have a big crash. 

I called the financial company to get more information.  If I surrender it now, I stand to lose 4%.  After 2021, I can surrender without fee - I will wait until then.

Thanks!

Itsmylife

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Re: IRA in Annuities - not ready to retire
« Reply #7 on: September 29, 2020, 11:40:14 AM »
It is tied to the market - the money is in mutual funds.