When listener Portia asks questions about her "Women and Money" podcast for variable annuities Suze Orman No retreat. Based on Portia's high fees, Portia and the timeline she faced suggested that she cut losses and be quick.
If you've ever wondered if an annuity is right for your retirement funds, especially when it involves 401(k), this is a story worth watching.
Portia explained that she transferred $85,000 from her former employer’s 401(k) to a variable annuity in Fidelity in 2022. She currently costs about $380 per quarter, more than $1,500 per year, while the annual capitulation period for an annuity is nine years. If she waited, she avoided the allegations of surrender but still paid a high fee. If she quit now, she will face a fine of about 7%.
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Auman did math. If Portia sticks until her ninth year, she will eventually pay about $9,120. By comparison, her surrender cost about $6,300 to $6,900 today. "Absolutely surrendered," Allman said. "It doesn't make sense for you to enter it."
Orman has long warned against incorporating retirement savings into variable annuities, especially when they come from qualified accounts like 401(k). As far as Portia is concerned, high annual expenses alone are enough to reconsider.
According to Investopedia, variable annuities are usually used only to manage and manage costs each year, charging 2% to 3% of revenue per year. Coupled with the capitulation fees, possible sales commissions and insurance premiums, you are considering the serious consumption of retirement savings over time.
Even if annuities provide the benefit of guaranteed income, the price of the securities comes at a price. “It doesn’t make sense for you to get in,” Allman said. “You might even want to convert it into a Roth IRA bit by bit, and it does save money in the long run.”
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Rolling 401(k) into an annuity sounds appealing - it promises stability and income when retired. However, if you don't fully understand, this move can backfire.
Why:
No additional tax benefits:401(k) has been taxed, so transferring it to an annuity does not save extra taxes.
Limited flexibility: Annuities usually lock you in a fixed payment schedule, which can be a problem if your fees vary per month.
High fees: Fees can quietly disappear with your balance, reducing future spending.
Inheritance issues: If you die prematurely, the remaining annuity funds may be handed over to the insurance company, not your heirs.
See also: Can you guess how much $5,000,000 nest eggs are available for retirement? Percentage may shock you.
Orman suggested that Portia abandon the annuity and reinvest its IRA funds in a more meaningful way. She also proposed the idea of gradually converting funds into Roth IRA to ease future tax burdens.
If you are in a similar situation, consider asking financial planners for advice before making changes. Understanding the expense structure of your investment, potential fines and tax impacts are key to making the right decision.
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Is there a $85,000 investment error in this article? Suze Orman said the audience should exit her annuity as soon as possible, initially appearing on benzinga.com
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