Help Me Convince Her! --- "Advisor" Rolling 401(k) into Variable Annuity

[Penguin_MD]

So my fiance is under the following dilemma:

Please help me explain (much more eloquently than I can why is a bad idea...at least from what I have read)

 

In the next year, our combined income tax bracket is definitely going to increase (and will continue at a high bracket for eternity).

 

She has a Traditional 401k from a prior employer.

She also has a traditional IRA with NMA (her choice at that time, not mine).

This "advisor" is trying to create a new traditional IR and put a VA into it.

The plan is rolling over the existing 401k into the existing traditional IRA, then sell out of these shares and move that sum into the new VA (inside the new IRA).

 

Cited Advantages –

Future annuitization options, lower up front sales charge than brokerage options, robust Multi-fund asset allocation, no surrender charge since front load

(some of these are laughable to me)

Cited Disadvantages-

Up front sales charge – 4.5%

Ongoing expenses (mortality and expense) – 1.22

 

What is the potential “red flag” as it pertains to sales of the existing IRA shares purchased within the last 3 years.

 

 

Thanks for all your help in advance!

[Virajith Wijeweera]

Annuities in general are not great investment vehicles.  In addition to high fees, there are all sorts of restrictions and hidden clauses. I am sure she can invest in a portfolio of ETFs and mutual funds in her IRA without purchasing a VA to obtain similar results.

If you conduct a poll on this forum, you will see that most would not recommend investing in annuities.

Do you have any material that you can share the advisor provided regarding this VA?

[Bartl007]

I think the root of the problem here is that your “advisor” has a financial conflict of interest.

You really should ask for a second opinion from someone who doesn't stand to make any money off of the decisions you're about to make with your plan rollover. There are several fee only (charged by the hour) advisors out there if you look around. Some advertise on this site.

[StarTrekDoc]

Run away, less you putting her hard earned $$ on his plate.

Show your SO this board and threads on Whole life, Universal Life, Annuities -- really all variations on the same product theme.

[Hank]

Penguin_MD wrote:

 

Cited Advantages –

Future annuitization options, lower up front sales charge than brokerage options, robust Multi-fund asset allocation, no surrender charge since front load

(some of these are laughable to me)

Cited Disadvantages-

Up front sales charge – 4.5%

Ongoing expenses (mortality and expense) – 1.22%

 

Click to expand...

Run, don't walk, away from this "advisor".

You know what's better than a front load?  That's right, no load!  Variable annuities are a lousy product to begin with.  Placing them in an IRA is even worse.

Why is your fiancé with this "advisor"?  Is this a friend, associate, in-law, outlaw (almost certainly)?  Unfortunately, affinity marketing to people who are part of the same religion, geographic location, alumni network, etc. is all too common.

Your fiancé would be better served by having her IRA at Vanguard, Fidelity, Schwab, or TD Ameritrade.  You can purchase stock, mutual funds, and ETFs for little to nothing at the aforementioned locations.  Furthermore, you can get a roboadvisor for 30 or 35 basis points (about a third of a percent of assets under management) for a sound asset allocation that will be far less self interested than the lousy VA that this advisor is trying to sell.

It doesn't matter if this advisor is her brother or the bishop at her ward, she needs to drop this advisor pronto.

[Millbrown]

Also, her 401k is likely much bigger than the current IRA. If she moves the 401K money to an IRA, it makes your opportunity to do a backdoor Roth that less feasible since any conversion taxes is based on all IRA balances she has, not just the rollover amount, but does not include any 401k accounts. She could also roll her 401K into a new employer 401K at a new employer to keep it in that status if the new 401K has good low fee investment options.

[ENT Doc]

This about sums up my feelings on the matter:

https://www.youtube.com/watch?v=uSudkID3zJM

 

[High Income Parent]

Could you show her a difference of the compound growth of a portfolio with a 4.5% load vs one without it?

I just did the back of a napkin calculation on a $100k portfolio at 7% vs $95.5k at 5.78%. Over 20 years that's $100k difference! ($403k vs $302). Does she really want to pay this guy $100k or similar versus whatever the initial ammount is of her money?
If you have the actual amount we could calculate the difference for you.

[DMFA]

No. 401(k) are investments. Annuities are insurance. Don't mix them. She will lose so much to fees and the load that it's far from worth it.

Lower load than other investment options? Seriously? People still pay loads?

You can annuitize p much any amount at any time. "Future annuitization options" doesn't mean much to me...

Add to that the profound calculation above about losing 4.5% up front and 1.22% per year, and I fail to see why this is a good idea for anyone other than those receiving those fees and commissions.

[VagabondMD]

Tell her that the engagement is off if she goes through with it! We would not want you to marry into a variable annuity.

[Kamban]

Penguin_MD wrote:

She has a Traditional 401k from a prior employer. She also has a traditional IRA with NMA (her choice at that time, not mine). This “advisor” is trying to create a new traditional IR and put a VA into it. The plan is rolling over the existing 401k into the existing traditional IRA, then sell out of these shares and move that sum into the new VA (inside the new IRA).

Click to expand...

This is plain stupidity and a money grab. When I rolled over a 401K from a previous employer I just opened a roll over IRA at Vanguard. Since the funds were not available at Vanguard I just sold the 401K funds and had them transfer to Vanguard to be within 60 day rule. I then got Vanguard index Admiral funds and have forgotten about it. Let it grow slowly.

[mamaham]

newbie here... but my take...

If you are going to be in a "high bracket for eternity" you are going to want the ability to do a backdoor Roth.  I am in the situation now where I cannot do a backdoor Roth due to a traditional IRA sitting out there (was an old employer 401k, rolled to tIRA).  Trying to get it moved now.  It seems silly to me that you would move the 401k to a tIRA and then just have to move it later to open the backdoor Roth option.  Just move it once - either to her existing 401k with new employer (as a poster said above) or to a solo 401k (I am currently in the process of opening a solo 401k now so I can contribute to Roth this year.).

Just seems like you are blocking an option by going with the tIRA annuity. and like everyone else said, annuities are not a good option...

[mamaham]

"This is plain stupidity and a money grab. When I rolled over a 401K from a previous employer I just opened a roll over IRA at Vanguard. Since the funds were not available at Vanguard I just sold the 401K funds and had them transfer to Vanguard to be within 60 day rule. I then got Vanguard index Admiral funds and have forgotten about it. Let it grow slowly."

 

 

I did the same thing, and now I cannot contribute to backdoor roth.  Just be aware that if you do this, then the backdoor roth option is closed.  I was not aware of that when I rolled over the funds.

[VagabondMD]

mamaham wrote:

“This is plain stupidity and a money grab. When I rolled over a 401K from a previous employer I just opened a roll over IRA at Vanguard. Since the funds were not available at Vanguard I just sold the 401K funds and had them transfer to Vanguard to be within 60 day rule. I then got Vanguard index Admiral funds and have forgotten about it. Let it grow slowly.”

 

 

I did the same thing, and now I cannot contribute to backdoor roth.  Just be aware that if you do this, then the backdoor roth option is closed.  I was not aware of that when I rolled over the funds.

Click to expand...

That's not the end of the world, not being able to do the backdoor roth. What is the end of the world is a partner in life who makes foolish financial decisions and does not listen to reason. Do you think that will change when you get married? Really?

I am semi-serious when I say that this is grounds for ending the relationship.

[Dr. Mom]

Maybe try some humor with John Oliver's piece on retirement...

https://www.youtube.com/watch?v=gvZSpET11ZY