Author Topic: Taxable Accounts- Advantages to an Annuity?  (Read 1921 times)

Big Sleep

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Taxable Accounts- Advantages to an Annuity?
« on: March 07, 2015, 12:55:07 PM »
First time post here.  I've started working toward FI in the last 6 months or so, and have put approximately $20k into taxable investments, all into VTSAX.  Currently age 32, plan to reach FI in 12-15 years. 

I would like to work towards 80/20 AA over the next couple of years and was thinking based on information I've read on MMM, as well as other sites, that I would start adding in some VBTLX. 

My great grandmother opened an annuity for all of her great grandchildren in 2000 while I was still in HS, for around $1,000 and this has grown to around $2,000 right now.  I have never touched the account, as until recently I didn't completely understand what it was.  It is a flexible premium deferred annuity from Modern Woodmen and has a guaranteed interest rate of 4%, which could go up if interest rates rise.  I believe that it was something like 4.35% in the early 2000s.  My question being, is there any advantages to putting some of the money that I would put into VBTLX into this annuity?  I may not totally understand how this annuity works, but I think I could take guaranteed payouts for life at some point or make withdrawals after 59.5 y.o. and likely pay taxes on the interest.

MDM

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Re: Taxable Accounts- Advantages to an Annuity?
« Reply #1 on: March 07, 2015, 01:16:18 PM »
I may not totally understand how this annuity works
Big red flag there.  This may be a perfectly legitimate and reasonable investment vehicle - but too many annuities are not.  E.g., see http://forum.mrmoneymustache.com/investor-alley/annuities/.

In other words - do read the fine print before committing your money.

Big Sleep

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Re: Taxable Accounts- Advantages to an Annuity?
« Reply #2 on: March 07, 2015, 01:47:24 PM »
Reading some information on the Modern Woodmen website and looking over the contract a little more carefully, shows that all fees and expenses for the account were paid up front.  The only fees I would have incurred on the account after that time would be surrender fees.  These would have been applied if I withdrew more than 10% of the account value in a given year for the first 9 years.  Since the account was opened in 2000, the only charges I would see from this account are taxes on deferred interest when I take it out, or the typical 10% penalty on retirement accounts before 59 1/2. 

My plan would be to take a lump sum at some point after 59 1/2, versus the 10 yr/lifetime payout option.  That is if I are legitimate reasons to use this for a retirement account.

And looking back at interest rates, this was actually paying between 4.40-6.20% from 2000-2008.

LordSquidworth

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Re: Taxable Accounts- Advantages to an Annuity?
« Reply #3 on: March 07, 2015, 03:17:50 PM »
Reading some information on the Modern Woodmen website and looking over the contract a little more carefully, shows that all fees and expenses for the account were paid up front.  The only fees I would have incurred on the account after that time would be surrender fees.  These would have been applied if I withdrew more than 10% of the account value in a given year for the first 9 years.  Since the account was opened in 2000, the only charges I would see from this account are taxes on deferred interest when I take it out, or the typical 10% penalty on retirement accounts before 59 1/2. 

My plan would be to take a lump sum at some point after 59 1/2, versus the 10 yr/lifetime payout option.  That is if I are legitimate reasons to use this for a retirement account.

And looking back at interest rates, this was actually paying between 4.40-6.20% from 2000-2008.

Id bet you're reading it wrong.

MidWestLove

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Re: Taxable Accounts- Advantages to an Annuity?
« Reply #4 on: March 07, 2015, 04:05:16 PM »
"is there any advantages to putting some of the money that I would put into VBTLX into this annuity"

flexibility (do not have to wait until age 59),  tax advantages (tax loss harvesting, etc) , fees (ER for mutual funds/ETF vs what is present in the annuity). check out gocurrycracker.com (why Roth Sucks). Annuity sucks much harder than Roth :)