Bibliography

Merits Of Using A Deferred Annuity To Fund An IRA,

401(k), 403(b) Or Other Tax Qualified Retirement Plan

 

Table 1 (independent views)  Part 1  Part 2  Part 3  Part 4  Part 5  Part 6

Table 2 (annuity industry views) - Part 1  Part 2

 

 

Table 1, Part 4

(independent views)

 

 

 

 

Citation

Summary Excerpt

150

Walter Updegrave, “One Small Cheer For Variable Annuities,” MONEY, January 2000 at 91

Unless you are ready to annuitize, funding a rollover IRA with a variable annuity “rarely makes sense.”

 

Regulators have been scrutinizing these sales. “`The IRA already has tax deferral,’ says Paul Roye, the SEC’s director of investment management, explaining that putting a tax-deferred variable annuity into a tax-deferred account is redundant. `Would you put muni bonds into an IRA?’”

 

149

Suzy Hagstrom, “First Step In Teacher’s Lesson Plan: Crash Course In Investing,” Los Angeles Times, December 21, 1999 at C1

“[M]ost financial experts think it's redundant to invest one's 403(b), which is already tax-deferred, into any type of annuity, which is also tax-deferred. Most annuities also charge high fees, which reduce investment returns.”

 

The article profiles Marjorie Stanford Wray, a certified financial planner for Aragon Financial Services Inc. in Fountain Valley, CA, who is educating teachers on how they can move their 403(b) plan investments out of annuities and into mutual funds.

 

148

William C. Jerome, “Scam of the Quarter: Annuities in IRAs,” The Jerome Bulletin, December 1999 at 2

“Putting an annuity into an IRA ought to cause an immediate disciplinary action; the only reason to put an annuity into an IRA is to maximize the broker’s commission.”

 

The author explains that unlike load mutual funds, there are no price points with an annuity above which the load, or commission, is lowered or waived, if the amount invested were high enough.  “This, of course, means less money in the broker’s pocket. If the broker can get his client into an annuity, however, the broker can pocket the full 6% commission.”

 

147

“Follow-Through,” Forbes, December 13, 1999

“Tax-deferred annuities are a bad buy for most investors, we said in a cover story early last year, reasoning that their meager tax advantages were overwhelmed by their cost disadvantages. . . . Smelling blood, plaintiff lawyers have filed class actions challenging the sale of annuities for retirement accounts, which already provide tax benefits.”

 

146

George Chamberlin, “Trends Are Discernible In Year’s Investing,” North County Times, December 12, 1999

“I am constantly hearing from people who are being sold variable annuities in retirement accounts.  Senior citizens are having their savings accounts transferred into variable annuities.  Investors who have no tolerance for risk are being told variable annuities are safe because of the death benefit to beneficiaries.  Again, it comes down to commissions.”

 

George Chamberlin of San Marcos is a radio commentator for station KSDO.

 

145

“What A Deal,” Dow Jones Investment Advisor, December 1999

“It makes no sense to put a variable annuity inside a qualified retirement plan, of course.”

 

Lawsuits filed on behalf of deceived investors are calling on insurers “to repay the insurance fees, and refund surrender charges on contracts that were inappropriately sold.”

 

144

“Annuities,” iVillage.com (December 1999)

“One final word of caution: don’t buy an annuity within an IRA or other retirement account. Those accounts are already tax-advantaged, so the tax-deferred nature of the annuity is wasted -- yet you’re still stuck with the high fees.”

 

143

“In Brief,” Time, November 22, 1999 at 116

“One of the selling points of annuities is that they are tax-deferred products. So companies like life insurers that sell annuities within tax-deferred, retirement accounts such as 401(k)s or IRAs aren’t offering added value, just added profits.”

 

142

Kathleen Lynn, “Costly Lesson For Teachers -- Many Paying Too Much For Retirement Plans,” The Record (Bergen County, NJ), November 14, 1999

Teachers are being sold annuities, instead of mutual funds, for their 403(b) plans. “But they don’t need it: Annuities’ main benefit is that the earnings are tax-deferred, but earnings in a retirement plan are already tax-deferred. . . . [O]ver time, the cost of a 1.5 percent annual annuity fee can be staggering.”

 

“The problem is that few employees know this. The insurance companies that sell annuities have no reason to clue them in.”

 

141

Deborah Lohse and Bridget O'Brian, "Lawyers Seek Class Action Against Insurers Over Annuities," Wall Street Journal, November 9, 1999 at C1

"The Securities and Exchange Commission is focusing, in its annual reviews of insurance companies, on whether companies adequately disclose why annuities aren't necessarily appropriate for qualified plans. `There's a heavy burden that has to be overcome to justify that product in a tax-deferred plan,' says Paul Roye, director of the SEC's investment-management division."

140

Miriam Hill, “The Rise Of The Informed Investor,” Philadelphia Inquirer, November 2, 1999

Some plans “are outright rip-offs, retirement-plan experts say.”

 

“Pay especially close attention to costs if an insurance company provides your plan, said Catherine McBreen, head of retirement consulting at Spectrem Group’s Chicago office. They often tack on annuity fees of an extra 1.25 percent or more a year, she said.”

 

139

Robin Glenn, “Teachers’ Rocky Transition To Mutual Fund Investing,” Plan Sponsor, November 1999 at 100

According to Spectrem Group retirement services, a financial consulting firm based in San Francisco, 85% of all 403(b) money is invested either fixed or variable annuities offered by insurance vendors. “While it makes financial sense to make investments in cheaper no-load mutual funds. . . few teachers have done so.”

 

“`Insurance companies have dominated the market with TSAs for so many years and it’s difficult to move money out of those accounts,’” says Randy Taylor, a vice president with State Street Global Advisors.

 

138

Joe Call, “Variable Annuities: The Good, Bad, And The Ugly,” Idaho Falls Post Register, October 10, 1999 at E6

“I regularly see annuities in IRAs and other retirement plans, which is a tax-deferral wasted within a tax-deferral. The worst case I’ve seen was an investor with over $2 million in annuity contracts within an IRA.”

 

The author is a fee-only financial and investment advisor.

137

Michael G. Stevens, “Variable Annuities’ New Look,” Practical Accountant, October 1999 

Peggy Ruhlin, principal in the Columbus, Ohio financial planning and investment advisory services firm of Budros & Ruhlin, Inc. says "I think people who put variable annuities inside IRA accounts or other tax-deferred retirement plans are probably guilty of malpractice in many cases."

 

"People are sold these things without having all of the drawbacks explained to them," she adds.

 

136

Terry Savage, The Savage Truth On Money (John Wiley & Sons, Inc. 1999) at 253

Under the heading the “savage truth on what most annuity buyers don’t know” the author states that “buying a variable annuity inside a retirement account is a waste.”

 

“Your retirement account is already tax-sheltered, so why pay the costs of a tax-deferred variable annuity inside your retirement plan? Astoundingly, more than $20 billion of IRA annuities were sold in just one year. Clearly, the salespeople were very persuasive. They earned commissions as high as 7 percent for putting their clients into variable annuities in their IRAs, when individual mutual funds would have done just as well at far less cost.”

 

135

Helen Huntley, “The Nuts And Bolts Of Annuities,” St. Petersburg Times, September 26, 1999 at 2H

Although the annuity industry insists that annuities belong in tax-deferred retirement accounts, the experts dispute that conclusion. “[I]f some employees do not value the services or the guarantees life insurance companies are offering, they should have some alternatives.” says Steven Pottier, an insurance professor at the University of Georgia in Athens.

 

“`The value of the death benefit and other minor benefits of annuities do not approach their costs,’ said William Reichenstein, a finance and insurance professor at Baylor University in Waco, Texas.”

 

“It’s like wearing a suspenders and a belt. . . [i]nside a 403(b), 401(k) or IRA, you’ve already got tax-deferred compounding. You’re paying fees on a product you don’t need.” says Dee Lee, co-author of The Complete Idiot’s Guide to 401(k) plans and a consultant to the Florida Public Pensions Trustees Association.

 

A companion article describes the frustration of public sector employees who have annuities that “come with a mandatory layer of insurance and accompanying fees” as their only retirement investment choices in 403(b) and 457 plans. Due to the lack of sophistication by municipal benefits bureaucracies in setting up the plan choices, an employee pays extra annuity fees that “buy an annuity death benefit he does not need, personal service he does not want and tax deferral that is superfluous because retirement accounts already are tax-deferred.”

 

134

Matthew Lubanko, “Savvy Investor: Sweeter Deals On Annuities,” Hartford Courant, September 25, 1999 at D1

Make sure you need an annuity in the first place, warns John Eckles, president of Pinnacle Investment Management Inc. in Simsbury.

 

Before buying a deferred annuity, first contribute the maximum to IRAs and 401(k) plans. “IRA and 401(k) mutual funds are also cheaper to buy and maintain, said Gordon K. Williamson, a San Diego-based financial planner and author of `Getting Started in Annuities’ (John Wiley & Sons, 1999).”

 

133

Holly Nicholson, “Annuities Not As Good As Planner Says,” News & Observer [Raleigh, NC], September 19, 1999

A reader writes that a certified financial planner is recommending transferring their IRA from CDs to a fixed annuity, on the basis of the advantage that the “interest in the annuity would grow tax-free.” The columnist responds that “[t]he main advantage of investing in an annuity is the tax-deferred growth it offers [so]. . . why place a tax-deferred annuity under an IRA umbrella?” “I have several concerns with this `plan,’ not the least of which is the harm planners like the one you’ve met do to their clients and the image of the financial planning profession.”

 

132

Barry Kilzer, “Annuities Inside IRAs,” Monterey County Herald [Cal.], September 16, 1999

The author is a financial adviser and president of Kilzer Financial Group, Carmel, California. He reports having seen more than $1 million in IRAs that have been invested in tax-deferred variable annuities. “This is unscrupulous and abusive to the clients. . . [p]erhaps [the recent class action lawsuits] will sound the death knell of this unprincipled sales practice.”

 

131

David Bixler, “More To Your 401(k) Plan Than You Know,” Indiana Lawyer, September 15, 1999 at 10

“[I]n recent years competition has lead many insurance companies to make changes in the surrender, mortality and expense risk fees they charge. . . . While every plan sponsor has a fiduciary duty to act in the best interest of the participants, when surveyed, three-quarters of plan sponsors didn’t know the costs being charged to the company plan.”

 

The author is president of Capital Strategies, Inc., in Indianapolis.

 

130

Kathleen Lynn, “Two Money-Management Firms Slash Annuity Costs,” The Record (Bergen County, NJ), September 10, 1999

“Some investors place their retirement-account money -- which is already shielded from taxes -- into annuities. In these cases, they’re paying extra for an unneeded layer of tax protection” say Lauren Locker, a fee-only financial planner in Totowa, NJ, and Karl Graf, a certified public accountant and fee-only financial planner in Wayne, NJ.

129

“Forum: Do Variable Annuities Belong In Qualified Plans?” Annuity Market News, August 1, 1999

“Recently, variable annuities have been criticized for being included in qualified plans because an annuity duplicates the tax deferral that is already available within such plans. But the insurance industry argues that annuities have a long history in the qualified market, and their benefits go far beyond tax deferral.”

 

Stephen Bulter, president and CEO of Pension Dynamics, states that annuities have an additional layer of cost and that “[i]n a taxable investment, there might be an argument for paying that cost, to get the tax deferral, but in a DC plan or in a qualified retirement plan you're already getting the deferral.”

 

John Woerth, a spokesperson for Vanguard Group, states that “Vanguard does not recommend investing defined contribution assets in an annuity.  The double tax deferral is akin to wearing a belt and suspenders. The higher costs of a variable annuity vs. a traditional mutual fund weighs against, quite heavily, the former. “

 

Farrell Dolan, senior vice present at Fidelity Investments Life Insurance Co. of Boston states that “[f]rom our standpoint, we use annuities in a non-qualified setting. . . . If you took a look at 125 to 140 basis points on assets and ran it out over 20 years lets say, 25 to 30 years of your savings...that's going to be one heck of a number. There's no need for double tax deferral. From our standpoint it doesn't make sense.”

 

128

Lee Clifford, “Ten Things Your Benefits Department Won’t Tell You,” SmartMoney, August 1999 at 131

Nancy Lee, an information-systems manager from Silver Spring, MD had a variable annuity in her 401(k) with a hidden sales commission, and then she paid “another fee when her company decided to switch plan providers a year later and canceled” the annuity contract early.

 

“Of course, since qualified plan money is already tax-deferred, products like variable annuities have `a layer of fees, administration and insurance the employees pay for that they don’t really need,’ says Dee Lee (no relation), a certified financial planner and author. Even if you suspect you’re getting gouged, proving it can be close to impossible because fees and commissions are usually figured into the formula used to calculate your gains.”

 

“So why do such products end up in retirement plans at all? Most likely, it’s the result of employers not doing the research, being suckered into offering high-commission products or not caring since workers wind up paying most fees. Small companies and nonprofits, where decisions are more likely to be made on the basis of a personal relationship, are particularly vulnerable, says Ted Benna [of the 401(k) Association, a pension administrator and consulting firm].”

 

127

Alan Feigenbaum, “An Annuity’s Naked Truths,” ragingbull.com, July 28, 1999

“Nudity turns on its buyer, while an annuity turns on its seller.” 

 

“It’s especially galling that these tax-deferred lifetime instruments have been frequently sold for inclusion in already tax-deferred IRA, 401k, and 403b plans. . . . That’s why the NASD is also stepping into the act, reminding providers of the inappropriateness of pushing variable annuity sales as an investment for tax-deferred retirement accounts.”

 

126

Jane Bryant Quinn, “Variable Annuities: Proceed With Caution,” Washington Post, July 25, 1999 at H2.

The nationally syndicated columnist writes that “sure, variable annuities are tax-deferred, but your retirement plan is tax-deferred already. Why pay for this advantage twice?”

 

Ms. Quinn reports that after her recent column describing class action lawsuits filed on behalf of misled investors, she got “floods of letters from readers who believed that they, too, had been misled.” If variable annuity sales practices conformed to NASD Regulation’s conduct rules, “fewer variable annuities would be sold.”

 

125

Kimberly Lankford, “Ask Kim: Why Did My Financial Adviser Choose An Annuity?,” Kiplinger.com, July 7, 1999

The reader’s financial adviser placed a $20,000 IRA rollover in a variable annuity.  The reader wonders why an annuity rather than regular mutual funds was recommended by the adviser.

 

Kimberly Lankford writes: “Here's one possible motive: With most annuities you pay higher fees and commissions, which go to the financial adviser who sells the annuity.”

 

“There is usually no good reason to invest IRA money in an annuity instead of in a mutual fund or stocks. Annuities are known for their tax deferral, but IRAs are tax deferred already. It's often referred to as wearing a belt and suspenders. The higher fees and commissions don't include surrender charges, which may cost you up to 9% if you switch out of the annuity in the first seven years[.]”

 

124

Carolyn T. Geer, “Finally, A Warning About Annuities,” Fortune, July 5, 1999 at 212

“Buying a tax-deferred variable annuity to fund an IRA, 401(k), or other ‘tax qualified’ retirement plan is one of the great follies of the investing world.”

 

A recent NASD Notice reminds sellers of variable annuities that when recommending a variable annuity for funding a qualified plan, the seller has a duty to disclose to the customer that tax deferral is provided by the qualified plan and the tax deferral feature of the annuity is “unnecessary.” As a result, the “easy-money days may be over” for the “armies of highly motivated annuity salespeople” who “earn more selling annuities than they could selling virtually any other investment.”

 

123

Kathy Kristof, “Portfolios Should Be Tax Efficient,” Fresno Bee, July 4, 1999 at C1

Philip J. Holthouse, partner at the Los Angeles tax law and accounting firm Holthouse Carlin & Van Trigt, says that he’s seen “people put variable annuities and municipal bonds in retirement accounts -- an unnecessary and costly doubling up of tax-favored vehicles.”

 

122

Stephanie AuWerter, “Double Tax-Deferred!?!,” SmartMoney.com, June 16, 1999

“By investing your IRA in a variable annuity, `you’re paying for a tax-deferral that’s redundant,’ explains CAP and financial planner Joel Isaacson. `Why would you ever want to do that?’ The problem is that by investing in annuities you’re probably going to pay a hefty amount in fees with fewer investment options.”

 

121

Richard A. Oppel, Jr., “For Teachers, Object Lessons From The 401(k),” New York Times, June 13, 1999 at C1.

Teachers are fed up with annuities sold as 403(b) plan investments because “it doesn’t have to be this way.”

 

“It tugs at my heart knowing my kids are going to lose 25 percent or 30 percent of their nest egg because of these damn [annuity] fees.” says Ted Leber, a retired Navy captain whose son and daughter-in-law are public schoolteachers in Maryland. A study shows that insurance companies are paying its sales representatives more for selling annuities than mutual fund distributors pay for selling mutual funds.

 

120

Clifford G. Dow, Sr., “Deferred Annuities Unmasked,” Dow Publishing Company, June 1999

Under the heading “The Cardinal Sin,” the article states: “Of all the inappropriate places one occasionally encounters a deferred annuity, surely the most blatant is in another tax-sheltered vehicle such as an IRA or a 401(k). There can be little justification for accepting all of the disadvantages of a deferred annuity under circumstances where its primary perceived benefit cannot even be enjoyed. Since one's IRA or 401(k) is already tax-sheltered, there are no incremental tax savings to be realized by funding such an account with a tax-deferred investment.”

 

The author is a principal of a commission-based investment brokerage in Portland, Maine.

 

119

Jonathan Bergman, “A Promising Investment and Cutlery, Too,” Sentinel, June 1999

Much of the “economic benefit of the tax deferral [of a variable annuity] simply is offset by those higher costs.  To this extent the tax deferral benefit goes to the annuity seller, not the buyer.”

 

“One thing you should never do is roll over an IRA account into a tax-deferred annuity.  Since the IRA is already tax deferred, and since you can obtain basically the same investments more cheaply by simply having the IRA buy mutual funds, placing an IRA inside an annuity merely trades inexpensive tax-deferred growth for expensive tax-deferred growth.”

 

118

Rick Bloom, “Investor Is Paying Fees For Nothing,” Detroit News, May 28, 1999 at B5

The readers’ “financial adviser made a mistake” by transferring 403(b) money into a rollover IRA funded by a variable annuity. . .”[A]n IRA is already tax deferred, therefore. . . you end up paying higher administrative fees for nothing.  When a financial adviser does not work for your best interests there is no reason to continue with them.”

 

117

Ruth Simon, “Some Investors Look To Diversify Their IRA Portfolios,” Wall Street Journal, May 21, 1999 at B3

“Other IRA investments simply make little financial sense, some financial advisers say. . . . `Why on earth would you want to pay the additional fees for the tax-deferral of a variable annuity’ when an IRA already provides the same tax deferral? [Rande Spiegelman, manager of investment advisory services for KPMG Peat Marwick LLP] asks. `It’s like wearing a belt and suspenders.’ Even some trustees that accept annuities in IRAs question their value. `I tend to agree that annuities don’t belong in an IRA,’ says Leigh Chaffee, a vice president for First Trust, a Denver unit of Fiserv. `But people are sold these things.’”

 

116

Rick Bloom, “Annuities Are Losing Investments,” Detroit News, May 7, 1999

A reader writes that he rolled over a corporate retirement payment to an IRA annuity and thinks he “probably did not ask the right questions at the time I invested my retirement.” In response, Mr. Bloom writes that the reader “made a mistake by investing in an annuity within an IRA” because “too much of your money ends up in someone else’s pockets.”

 

115

Terry Savage, “Don’t Overlook Benefits Of Immediate Annuities,” Chicago Sun-Times, May 2, 1999 at 61

“Ordinarily you’d never want to put a tax-sheltered retirement account into an annuity. After all, retirement money is already tax-sheltered, so why pay for an annuity contract? But there is an exception. You might want to put a portion of your IRA rollover into an immediate annuity contract, and get a monthly check that will cover the regular withdrawals that will be required once you reach age 70 1/2.”

 

114

Jane Bryant Quinn, “Selling Annuities Under False Pretenses,” Washington Post, May 2, 1999 at H2

Class action lawsuits have been filed against insurance companies seeking to curb deceptive sales of deferred annuities. “Scrupulous sellers of tax-deferred annuities don’t offer them for retirement plans. Can unscrupulous sellers do it and get away scot-free? These lawsuits may decide.”

 

113

Virginia Munger Kahn, “How Good Is Your 401(k)?,” Individual Investor, May 1999 at 89

“[B]eware of variable annuities, which are mutual funds sold by insurance companies and offer a guaranteed payout at retirement. For that guarantee, variable annuities carry an additional layer of fees” that are not disclosed in the fund prospectuses.

 

“You need to look at both the fund prospectus and the employer’s contract to uncover the fees,” says Dave Huntley of HR Investment Consultants in Towson, Md. 

 

112

Liz Pulliam, “Money Talk,” Los Angeles Times, April 11, 1999 at C3

“There are some situations in which a variable annuity can make sense. A tax-deferred account is not one of them. The main reason to pay higher fees for a variable annuity is to get the tax deferral. You’ve already got that tax deferral in an IRA, 401(k) or 403(b).”

 

111

Bill Barnhart and Melissa Wahl, “Allstate Fixes Sights On Variable Annuities,” Chicago Tribune, March 4, 1999

R. Mark Bell of Chicago-based financial advisory firm Mark Bell & Associates is quoted: “it’s difficult to overcome a seasoned sales pitch from a life insurance agent who has a fortune to make on the sale of an annuity,” Bell said.  “You would be astounded how many prospects come to my business with annuities inside an IRA.  It’s absolute insanity.”

 

The insurance industry sees the complexity of the product as an attribute, because it creates the need for professional advice and service from an agent.

 

110

Michelle Andrews, “The 401(k) Crusaders,” SmartMoney, March 1999 at 106

“[T]he Internet has provided new ammunition to the cause. Timothy Younkin, a pharmacist from Virginia Beach, Va., whose employer refuses to get rid of the high-fee annuity in its 401(k), put his complaints up on the Web. `BEWARE. Annuities were never intended to be used as 401(k) plans,’ it announces.”

 

109

Jonathan Clements, “Journal Readers Expound On Their Biggest Financial Goofs,” Wall Street Journal Interactive Edition, February 16, 1999

Readers write in with their own examples of costly financial mistakes and “bad advice taken”:

 

“`My dumbest move was to engage a slick-talking financial advisor. He advised me to put my 401(k) money into a variable annuity with all the normal surrender charges.’ -- Richard Davis”

 

“`The most ignorant thing I ever did was to let my former financial advisor put my rollover pension funds into a variable annuity with a seven-year declining contingent sales load. The dumbest thing I ever did was to let him roll it over into another variable annuity with another seven-year sales load. I am eagerly awaiting the day I can rectify that mistake.’ -- Mike Sheehan”

 

108

Jonathan Lansner, “Investigate Your Options When Transferring Retirement Accounts,” Buffalo NewsFebruary 1, 1999 at 6B

The syndicated columnist warns against moving money out of an employer’s retirement plan into a rollover IRA if the IRA is being proposed by an insurance company: “Many retirement plans are administered by insurance companies that often have pricey deals for traditional IRAs, and sometimes they'll wrap your retirement savings in variable annuities that include unneeded insurance costs.”

 

107

Patrick Larkin, “Watch For Fees On Variable Annuities,” Cincinnati Post, January 12, 1999

“If you buy a variable annuities for use in an already tax-deferred retirement plan, you're getting double tax-deferral - often at a high price.”

 

106

Stephanie AuWerter, “10 Financial Mistakes To Avoid In 1999,” SmartMoney.com, January 8, 1999

Mistake #7 is “Don't Get Suckered Into a Variable Annuity.”

 

These hybrids of mutual funds and life insurance are senseless for most investors -- especially if they are held inside a tax-deferred account like a 401(k) or 403(b).”

 

105

Beth Healy, “Annuities Aren’t For All,” Boston Herald, January 7, 1999 at 31

“Ever had a broker push an annuity on you?”

 

“The key is to make sure an annuity is right for you. `They're being sold to the wrong people,’ warned Ed Slott, publisher of Ed Slott's IRA Advisor. `They're not for everyone.’”

 

Annuities aren't appropriate for most people until they exhaust other options, Slott said. They're costly and include often unneeded insurance. Employer retirement plans and IRA mutual fund investments should be considered first.”

 

104

Paul A. Merriman, “What We Learned (Or Re-Learned) About Investing In 1998,” Fundadvice.com, January 1999

“I'm always dismayed to find variable annuities being used inside IRAs. These combinations are obviously sold, not bought.  Here's what I mean: It's easy to see why a sales person would favor an annuity: hefty commissions. But it's hard to imagine an investor carefully studying the facts and then deciding to shop for an annuity to place inside an IRA. Annuities are insurance products that give investors a tax break in return for withdrawal restrictions and relatively high expenses. The tradeoff may be appropriate for investors with tax problems. But an annuity does not give you any tax advantage that you don't already have with an IRA. It does not give you meaningful investment options that you can't get elsewhere. It slaps you with penalties if you want to re-deploy your money elsewhere. All it does is restrict your options and reduce your returns because of expenses and fees. An annuity inside an IRA insures that you will pay for a benefit (tax deferral) that you don't get (because you already have it).”

 

“Lesson for you: Make sure you are investing your retirement money appropriately. If you're not sure, talk to somebody who doesn't have any financial interest in what investments you choose for your portfolio.”

 

103

Scott Burns, “Prisoners Of 403(b) Annuities,” Dallas Morning News, December 31, 1998

A couple writes in that they are both schoolteachers and `prisoners’ of only having annuities as investment choices for the 403(b) plan where they work. They ask whether they should fund a Roth IRA instead and forgo the tax deduction to avoid the annuity fees.

 

The columnist responds that “[g]iven the option of paying taxes today but having my money compound [in a Roth IRA] tax-free in a low-cost, no-load mutual fund or achieving tax deferral by subjecting my savings to a defacto `tax’ of high [annuity] annual expenses, I’ll pay taxes today.”

 

102

Dagen McDowell, “Should I Invest In An Annuity Within My 401(k)?,” TheStreet.com, December 16, 1998

"I personally don't see any benefit whatsoever putting an annuity in an IRA or any form of qualified plan," says Ben Tobias of Tobias Financial Advisors.

 

"It's obvious that it's redundant," says Vern Hayden, head of the Hayden Financial Group in Westport, Conn.

 

"The annuity costs you extra money effectively to get tax deferral that you already have in the 401(k)," adds Robert Levitt, a financial adviser with Evensky Brown Katz & Levitt in Boca Raton, Fla.

 

“If you want the annuity's minimum guaranteed death benefit, Hayden suggests that you buy a simple insurance policy directly.”

 

101

Eric Tyson, “Focus On Bettering The Investments In IRA,” Arizona Republic, December 3, 1998 at 4

The nationally syndicated columnist and personal finance book author states that “[y]ou should never buy an annuity inside an IRA. . . the only reason to consider buying one is for the tax shelter. Thus, buying an annuity inside an already tax-sheltered IRA doesn’t make sense.”

 

 

 

 

Table 1 (independent views)  Part 1  Part 2  Part 3  Part 4  Part 5  Part 6

Table 2 (annuity industry views) - Part 1  Part 2

 


See Part 1 for rights and permissions.

 

 

Ronald A. Uitz

Uitz & Associates

1717 K St NW Ste 600

Washington, DC 20036

202-296-5280