Tuesday, October 11, 2011

Getting Out of a Bad Annuity: 1035 Exchange

The Oblivious Investor blog has a good post about how to get out of a bad annuity.  If you own any annuity, it is worth a look.

Not all annuities are bad - just 95% or more.  For this reason, I typically tell folks to completely avoid all annuities. The odds are the annuity your salesman is pushing is one of the bad ones.  He/she would not be pushing it if it didn't provide big fees for him/her.  While it might not make tax sense to sell out of an annuity, it might make sense to "exchange" a bad annuity for a less bad annuity.  I would hazard a guess that if you have an annuity, and it is NOT a Vanguard annuity, you should look into exchanging into a low cost Vanguard annuity.

Most annuities will charge a "surrender fee" when you leave, but this fee gets smaller over time and quite often goes to zero after 7 years. You've got to do the exchange right to avoid a tax headache - so read the blog at the link above, and call Vanguard at 1-800-357-4720 if you are not comfortable doing this yourself online.

As I always say, I don't work for Vanguard, but they are the lowest cost investment manager in the world and most of my money is invested in their mutual funds and ETFs. That is why I always recommend them to family and friends and use their funds and their ETFs in my investment recipes in my books.

1 comment: