• Home
  • E-Booklets
  • Pay Less Tax
  • Privacy Policy
  • Cheatsheets
  • Contact Us
  • About us

Retirement Income

New Ways to Get More Retirement Income

  • Retirement Advisors
  • Retirement Insurance
  • Retirement Investing
  • Retirement Living
  • Retirement Planning

Is Exchanging Annuities Worthwhile?

Posted on September 11, 2011 by bobrichards

Many may not be aware that IRS Section 1035 of the tax code permits you to obtain new annuities in exchange for an existing annuities without tax incidence. But, before availing this exchange offer, it is prudent to study the likely repercussions to determine whether the exchange will be advantageous to you or not.

Broadly speaking, annuities may be classified into three different kinds – Fixed Annuity (FA), Variable Annuity (VA) and Equity-indexed Annuity (EIA).

Fixed annuities, as the name indicates, offer a fixed income as per the guaranteed contract rates.

Variable annuities are funded in a variety of ways - stock, bond, and money market funds. Their accumulation and income will differ accordingly. The additional feature of VA is it is registered with the Securities and Exchange Commission (SEC) and their transactions are regulated by the SEC and FINRA.

Equity-indexed annuities are a hybrid of fixed and variable annuities but the income is less steady than a fixed annuity but not as fluctuating as a variable annuity. Additionally, the principal is guaranteed.  It can be said that EIA carry more risk as compared with a fixed annuity and less risk in relation to a variable annuity.

If investing in variable annuities, please know you may have to pay different fees as outlined below:

(a) Surrender charges: applicable if you prematurely withdraw money from the annuity before a deadline period

(b) Mortality and expense risk charges:  This charged by the insurance company for covering the risk under the contract;

(c) Administrative fees: This is towards documentation and administration costs.

(d) Underlying fund charges: This pertains to the investment options

(e) Special feature charges: This is for a likely death benefit or for providing guaranteed minimum income.

Though you may have your own reason for wanting to exchange a variable annuity contract for a new annuity contract, it may still be worthwhile to ponder over the merits and demerits of such an exchange.  Note that any of the above annuities can be exchanged for the other type in a tax free transaction.

Merits

The present trend by annuity companies is to offer annuities that entice new investors with bonuses of 1 percent to 5 percent for each purchase you make. This apart, the other merits particularly in variable annuities are:

1.            There is an increase in the number of investment options

2.            There are today less expensive variable annuity contracts available.

3.            There is a pronounced increase in both death as well as survival benefits.

4.            Possible growth with stock market more promising

5.           Various guarantees for incomer after 10 years or other living benefits

Demerits

1.            Premium/ Bonus payments are usually negated by the company's levying surrender charges

2.            The earlier contract provisions including surrender charges lapse with an existing contract.

3.            New charges may become applicable with a new contract

4.            There may be higher annual fees and other charges for the new contract

5.            You may find some costly features of the new contract not worthwhile.

Points to ponder

When you are contemplating an investment in variable annuities you must study the investment objectives, the risk factors, the applicable charges, and other costs of the variable annuity as also its underlying sub-accounts. Try to obtain complete information about the variable annuity investment and ask for a prospectus from the concerned insurance company or the agent. Spend time to patiently read and understand the contents of the prospectus before finally investing.

Please note that premature surrendering of equity index annuities may not provide for market participation. Annuities investments will necessitate paying fees, expenses and surrender charges.  Guarantees offered by the company are related to the claims paying capability of the concerned insurance company.  The earnings are treated as ordinary income and withdrawals made prior to your attaining 59 ½ years will incur a ten percent penalty.

 

Most Annuity Owners Make This Mistake

To get wealthy, invest like the wealthy
  • Why the wealthy steer clear of mutual funds
  • How the rich systematically make money in the market
  • Key metrics that differentiate good and bad investments
  • A comparison of ETFs and separately managed accounts you have never seen
  • Stop making the same investing mistakes as everyone else who listens to CNBC and reads Money Magazine. Do what the rich do! Free guide explains how they think and make investment choices.

    You might also like:

    • Recession Can Be Good for Retirees - The Silver Lining of Recession
      Recession Can Be Good for Retirees - The Silver Lining of…
    • Retired and Stocks Losing Value
      Retired and Stocks Losing Value

    Filed Under: Annuities for Income

    About bobrichards

    Bob Richards
    Editor | Involved in Various Marketing Positions within the Financial Services Industry

    Comments

    1. Cheap Annuities says

      December 5, 2011 at 4:40 pm

      A great guide to annuities, plenty of information

      Reply

    Leave a Reply Cancel reply

    Your email address will not be published. Required fields are marked *

    Second place winner best retirement blog

    SH award winner SMALL (1)

    Not Enough Savings to Retire?
    Learn Six Ways to Earn Retirement Income (from home)

    You do not need special talents, skills, computer knowledge, etc. We show you multiple ways others are working a few hours a week to generate a comfortable retirement income.

    Download Free Copy

    Latest Posts

    Recession Can Be Good for Retirees - The Silver Lining of Recession

    Recession Can Be Good for Retirees - The Silver Lining of Recession

    Bear Market - When Will It End?

    Bear Market - When Will It End?

    When Will the Stock Market Recover

    When Will the Stock Market Recover

    How to Pay Lower Taxes on IRA Distributions

    How to Pay Lower Taxes on IRA Distributions

    Retired and Stocks Losing Value

    Retired and Stocks Losing Value

    Categories

    • 401K IRA Roth Withdrawals, Distributions, and Rollovers
    • Annuities for Income
    • Estate Planning
    • Retirement Advisors
    • Retirement Insurance
    • Retirement Investing
    • Retirement Living
    • Retirement Planning
    • Social Security
    • Supplemental Retirement Income
    • Tax Savings
    • Alternative Investments
    • E-Booklets
    • Pay Less Tax
    • Privacy Policy
    • Cheatsheets
    • Contact Us
    • Subscribe
    • Sitemap

    Recent Posts

    • Recession Can Be Good for Retirees - The Silver Lining of Recession
    • Bear Market - When Will It End?
    • When Will the Stock Market Recover
    • How to Pay Lower Taxes on IRA Distributions
    • Retired and Stocks Losing Value

    The Retirement Income Blog

    25A Crescent Drive #1508
    Pleasant Hill CA 94523
    T: 844-887-4131
    E: [email protected]

    © 2018 Retirement Income