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PBS Frontline : The Retirement Gamble, sorta Must See (1 Viewer)
- Thread starter Smack Tripper
- Start date
facook
Footballguy
If they bought it in 08 they should be past any penalty for transferring the Funds in the VA into an IRA. It sounds like the kind of annuity with guarantees to step up in value over time as long as they take lifetime payments at the end, but that is not their only option. That may not be a bad choice for them considering his health and their finances. However the run up in value from 08 to now should have been significant so transferring the account value in full could also be a great option. Either way they are most likely at peak value and these annuities are quite fee heavy so just leaving it there seems like the worst option.
Just some quick input but I do agree you should meet with a reputable financial advisor in your area for a thorough plan. If you don't know one ask friends for referrals for ones they trust.
Don't Noonan
Footballguy
Variable annuities can be bought in IRA (qualified) accounts or brokerage (non-qualified) accounts. This makes a big difference for your FIL because if non qualified and you cash out there will be tax consequences ( ordinary income tax on any gains). As DD mentioned, variable annuities have deferred sales charges and they typically last for 7-9 years. If bought in 2008, it may be out of surrender.
It sounds like there are a number of riders on the contract. If he has not taken any withdrawals, the benefit base is likely much higher than the contract value. I would recommend finding out the details on all the riders from Genworth. For example, is your MIL a co-annuitant ( can she receive income), what is current death benefit, does it reset annually? What income percentage/amount would he/they get if they took income? Is there a surrender charge? Qualified? What are total fees for contract? (M&I, admin, rider fees, mutual fund fees).
Based on the answers to the questions above it may make sense to hold onto, cash out, or even start taking income from the contract.
Wooderson
Fight The Power
https://www.americanfunds.com/individual/planning/retirement-planning/plan-contribution-limits.html
Could someone help understand this. So the above link is what I'm dealing with. My wife contributes 18k to her 401k. She also does another 35k for her profit sharing at her work. This is the max of 53k.
This has nothing to do with contributing limits on a IRA or a 529 right? She can still do the max on those per year of she would like correct ?
And further more all of the contributions no matter what investment type will help lower her taxable income correct ?
Thanks I need to wrap my head around this.
Could someone help understand this. So the above link is what I'm dealing with. My wife contributes 18k to her 401k. She also does another 35k for her profit sharing at her work. This is the max of 53k.
This has nothing to do with contributing limits on a IRA or a 529 right? She can still do the max on those per year of she would like correct ?
And further more all of the contributions no matter what investment type will help lower her taxable income correct ?
Thanks I need to wrap my head around this.
rick6668
Footballguy
Thanks for the detailed response, it's very helpful.
This was definitely bought in an IRA either using 401K funds or a buy out when he retired.
I'll post some details here and maybe you can answer a few of my questions, most I will need to contact them
Contract Date: 03/04/2008
Total Payments: $77,315.55 (This looks to be a one time payment when opened)
Total Withdrawals: $0
Change in Value: $14,375.52
Ending contract value: $91,691.07
Hypothetical death benefit: $96,925.77
Lifetime Income Plus 2008 rider benefit summary
Benefit Base value as of quarter end: $125,612.70
Withdrawal Base: $96,925.77
Roll-up Value: $125,612.70
Contract Value last anniversary: $89,324.46
Principal Protection death benefit value: $77,315.55
So what does benefit base mean? How much is thing really worth?
Thanks a TON for your detailed questions above that I can ask them to get more info. I am confused and I know they do not understand any of this stuff.
Tom Hagen
Footballguy
The first part is correct, She can contribute 53k total between her 401(k) and profit sharing.
She is still allowed to contribute $5,500 to an IRA ($6,500 if 50 or over) but it may not be deductible based on her income and the fact that she is covered by an employer plan. IRS Link
A traditional IRA would lower taxable income if she is under the income limit. You can contribute $5,500 to an IRA and deduct it if your joint income is less than $184,000. The income limit is higher because you are not covered by an employer but your wife is.
529 plan or Roth IRA contributions will not lower your taxable income.
NutterButter
Footballguy
I'd imagine that's dilemma a lot of people that are in the same situation where they've suffering from a mental condition and they don't have kids and a spouse or they've outlived their spouse or both people are going through it together.
Don't Noonan
Footballguy
If you cashed out today, assuming no surrender charges, it is worth the current contract value $91,691. The benefit base or withdrawal base has been growing the past 8 years. Typically they grow at around 6-7% minimum each year and if the contract value is higher on the anniversary it locks that amount in. Since he hasn't taken any withdrawals he has been letting this grow. I would clarify with Genworth but I suspect if he wanted he could start taking income on the benefit base of $125,612. At age 69, it may be around 6%, which is $7,536 a year. If your mother in law was a co-annuitant and in good health this may be a good option. If he is the only annuitant and he turns on income and passes away in 4 years he would have taken $30k out in income but the contract value goes down dollar for dollarvon withdrawals. Hence, unless he lives at least 10 years more taking income is probably not the best solution.
The step up death benefit is interesting, this means on the contract anniversary the death benefit steps up to the contract value if it is higher. I would confirm with Genworth that if he passed away today your MIL would receive $96,925. If you cashed in the policy now and he passed away later this year you would lose $5k. Another option is if he is the only annuitant and his life expectancy is limited would be to turn off the income rider if he never will use it, it would save money on fees.
Steve Tasker
Footballguy
If her income is sufficiently high that she is able to contribute $53k to her 401k/profit sharing, there's at least a decent chance that she's over the Roth contribution income limit. Backdoor Roth could be an option.
529 plan could potentially lower the taxable income for state purposes. That would depend on the state though.
Honestly, if Mrs. Wooderson is socking away $53k/year and he's got these kinds of questions, they should strongly consider paying someone to provide advice. I know that's not a common suggestion in this thread because most posters in here are pretty financially savvy, but not everyone is. Wooderson, your wife makes a lot of money. We can only provide very generic advice in this thread and can't give you anything tailored to your individual situation. I appreciate you wanting to do it yourself, but you should really consider talking to a professional. I'd hate to see you try to manage things yourself and get tripped up on something and screw yourself over with the dollar amounts you're talking here. The peace of mind might be worth the fee. Just my two cents.
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rick6668
Footballguy
Really appreciate your response. From the paperwork, he is the only one listed as the Annuitant, no co-annuitant. I'll have to get more information from them, but at first glance it sounds like he should not withdraw any funds for the time being. Sounds like this might be better being used as a life insurance based on his life expectancy. If he passed tomorrow and I confirm the death benefit is correct, would this be paid out as pre-tax or post tax income?
Thanks again, this is all really helpful.
Don't Noonan
Footballguy
If the contract is in fact in his IRA, there is no tax consequence. Most likely the contract is held within an IRA he owns. At his passing, the death benefit is paid out on cash to that IRA. Assuming your MIL is the beneficiary of his IRA, she could then roll that money into her IRA to avoid any taxes.
wilked
Footballguy
Rick:
First, the Variable annuity is not a good product. They made a mistake buying it. The only annuity that qualifies as a 'good' product is an SPIA (single premium immediate annuity).
I would try to move the money out of there, but before you did that need to understand penalties and such.
Here's a prospectus
https://hosted.rightprospectus.com/documents/GenworthVA/PRO_RetireReadyRetirementAnswer.pdf
I see 'variable account' expenses up to 1.5%, and then another set of fees (operating expenses) for about 0.77%. So it's designed to suck off the teat to the tune of 2 and a quarter % fees annual.
Figure out what the fee is to exit the annuity, and likely bite the bullet and get it over to Vanguard
First, the Variable annuity is not a good product. They made a mistake buying it. The only annuity that qualifies as a 'good' product is an SPIA (single premium immediate annuity).
I would try to move the money out of there, but before you did that need to understand penalties and such.
Here's a prospectus
https://hosted.rightprospectus.com/documents/GenworthVA/PRO_RetireReadyRetirementAnswer.pdf
I see 'variable account' expenses up to 1.5%, and then another set of fees (operating expenses) for about 0.77%. So it's designed to suck off the teat to the tune of 2 and a quarter % fees annual.
Figure out what the fee is to exit the annuity, and likely bite the bullet and get it over to Vanguard
rick6668
Footballguy
Thanks,
I just got done reading that and another one I found that was for the NY fund specifically. The other one was from 2009 and was 139 pages... WTF
Lots of fees that I saw especially on the riders. Looking at what the value is now, they earned 2.8% yearly over the last 8 years. I am almost sure they are past the penalties phase and can move it out, but I will check. I just didn't know with his life expectancy if keeping it might be valuable. What a mess. I'm not that savvy on this type of stuff, but they will not want to invest in something that will lose money I am sure. Probably why they got suckered into this, guy likely promised them you cannot lose your investment and are guaranteed 5% blah blah blah.
Well I have more work to do, the problem is it's not mine so I can't call these people directly and discuss.
Thanks again for the advice, it's much appreciated.
Don't Noonan
Footballguy
You are spot on here. Variable annuities are very confusing and people don't understand the guaranteed 5% is on the benefit base, not the contract value. The fees are likely over 3% with all the riders and he would have fared much better in index funds or etfs. They are typically sold to people who are very conservative who do not want to lose money as they provide some downside protection.
I don't know the life expectancy for your FIL, but that along with the death benefit info on the contract should be the determinent if he keeps the policy or cashes it in.
Wooderson
Fight The Power
BeTheMatch
Footballguy
Probably a dumb question here. But I work for myself as a sole proprietor. I max out my Roth IRA every year. But I don't put away more than that into retirement accounts. I've been putting it into savings and my brokerage account. I also have an old 401k from a previous employer that I rolled over into a traditional IRA. So my question is, can I make contributions to that Rollover IRA, or do I have to set up a SEP IRA?
Sand
Footballguy
You can't max out both a Roth and a traditional. You're limited to the $5,500 cap. SEPs look to be from a different pool (but, you know, talk to a tax pro before screwing something up). There's also solo 401ks that may be right for you. I know there are tradeoffs between those two - something to look into.
BeTheMatch
Footballguy
Did not know that. Thanks for the info.
Sand
Footballguy
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
Right at the top. Important to avoid as pulling it back can be a pain.
FUBAR
Footballguy
Tell me if I'm wrong (before I make the mistake) - I've maxed my tsp and my wife's Roth for the year. I think the next step would be to max my Roth IRA. But is that not allowed? If not we could put into the kids' coverdell accounts but we're actually thinking of leaving those alone at just over $25k each.
I'll talk to my tax paralegal Tuesday, she's all over this stuff.
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Steve Tasker
Footballguy
Like Sand says, SEP and self-employed 401(k) could be options. They will depend on some factors, employees, income level, etc. Generally the SEP is a little better for a pure sole proprietor with no employees, as it can be administered easily and does not require an annual filing. The self-employed 401(k) requires some more third-party administration and eventually requires an annual 5500 tax return once you hit a certain amount of assets. So the costs may be higher.
That said, I recently worked with some clients of mine who do pretty well financially; I had given a loose recommendation of a SEP, but we worked with our in-house wealth management people who have put together a self-employed 401(k) for them with some specific terms that should far outweight the slightly higher administration costs in the long-term. There are a lot of moving pieces to consider.
If you're making enough money to consider this, I would recommend that you seek a professional before making a decision, even if it's a brief hourly-fee-based sitdown with a wealth management advisor to understand your options.
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Don't Noonan
Footballguy
Depends on your adjusted gross income. If married filing jointly contributions to your Roth IRA would only be allowed if your agi was under $180k or so
FUBAR
Footballguy
Sand
Footballguy
Well, in the IRA space you get 5500 and your wife gets 5500. As long as you both have qualified income and don't fall outside the caps I don't think it's a problem. The previous question was about the same person doing both a traditional and a Roth. That is limited by person to 5500 total (more if you're old).
FUBAR
Footballguy
Right, just making sure the same rule doesn't apply to one person's tsp and Roth. I don't think it does but seems it should.
Doctor Detroit
Please remove your headgear
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Mr. Pickles
Footballguy
Is there a question?wilked said:
James Daulton
Footballguy
So I wanted to crank up a Roth in 2017. Started to investigate it and discovered that there are income limits on it? WTF? Is there anyway to get around these? I work for a non-profit and my 403B is not super flexible other than letting you pick which funds you wish to invest in.
What are my options here?
What are my options here?
Sand
Footballguy
You can read up on backdoor IRAs, like this one. There are a couple strategies that may work. Traditional IRAs have higher income limits and I've become convinced that if you're in the 25+% tax range you're better off putting it in there anyway. Then you can play money games and transfer over your tIRA to a Roth at very low rates.
NutterButter
Footballguy
You can backdoor your roth if you're into that sort of thing. Although I'd suggest putting that money aside for your son's next car.
James Daulton
Footballguy
James Daulton
Footballguy
Backdooring almost anything kind of gets me going so believe me I'll be looking into this.
matuski
Footballguy
What do you recommend when you are beyond the income limits of a traditional IRA? I am mindlessly throwing money into a brokerage account. Can I "backdoor" any of this money?
matuski
Footballguy
Yes.. usually in first 6 months of each year. July this year.... then I am investing in low fee index funds. Wondering if there are further tax tricks to play with this money.
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Sand
Footballguy
Max out 401k, see if you can backdoor anything (401k rules are different for each plan, so no telling if you can do this). Start a side hustle and squirrel money away in an individual 401k. After that, yeah, a regular brokerage account.
I'm of the opinion that having dollops of each type of money (tax free, tax deferred, and taxable) is fine. Taxable isn't as efficient in growing, but allows you to play games with tax loss harvesting and being able to manage your taxable income in retirement so you can shift monies from tIRA to a Roth to your greedy hands tax free (or very low tax).
matuski
Footballguy
Sand
Footballguy
Steve Tasker
Footballguy
The answer is "potentially yes, and it's complicated". Hire an accountant if you're going to play around with something like this, if you don't have one already.
If you have kids...potentially 529? But it looks like you have it covered for the most part.
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JoeSteeler
Footballguy
Company was bought out and new 401(k) gives the option of roth vs traditional...how do I know which one is better for me? I have a meeting Thursday with an in house benefit advisor but wanted to get some information before the meeting.
Thanks.
Thanks.
JoeSteeler
Footballguy
Another question. Want to put $5000 + 100/mo into a personal Roth. Is the Vanguard 500 Index Fund Investor Share a good fund? I am 20 years to full retirement.
Thanks again.
Thanks again.
wilked
Footballguy
If you're hitting the peak of your earning years, traditional better. If you are still working your way up the tax brackets than Roth better.
And the above choice is somewhat low on the scale of importance in the big picture.
Your Vanguard 500 is a fine choice on its own, but I have no idea how it fits in with your overall investment strategy / allocatoin plan
Sand
Footballguy
If you're limited to mutual funds rather than ETFs this is fine. Expense ratio is quite low, so very little drag there.
