3

After college I started contributing to a Roth IRA through a financial advisor that I knew and trusted. I had it for 10 years, then in 2009 I moved and found a new advisor based on a referral from someone I trusted, he's a CFP. He put me in a new mutual fund but in addition, he wanted to take my Roth Funds and roll them into a "Variable Annuity" because he thought it perform better with more advantages than disadvantages. I asked him a lot of questions and he had ready answers that sounded appealing.

Now I'm looking at the performance and it's not that good, the fees are astronomical, and I'm reading about Variable Annuities wrapped inside Roth IRAs and it sounds bad. I want to rollover again, to leave the Variable Annuity and put the funds into a Vanguard or Fidelity account. Again, I have a variable annuity, but the tax treatment is "Roth IRA".

I've had the Variable annuity over four years and as such, the penalty is 0. But here's my question. Is the penalty 0% for the whole investment, or only the part I invested in 2009. What about later contributions? i've been funding it since 2009.

Can anyone explain why I need a variable annuity in a Roth IRA? Is there a reason to hold onto it? Are there any pitfalls to rolling it over to a mutual fund or ETF Roth IRA with Vanguard/ Fidelity? I'm 43 years old...

Thanks!

Improve this question
4
  • 1
    When you say penalty - you mean Tax penalty, or a penalty assessed by the annuity or broker?
    – Joe
    Commented Jul 7, 2016 at 19:48
  • 2
    The reason to do it is to make money for the salesman. There's no benefit to you.
    – Loren Pechtel
    Commented Jul 7, 2016 at 23:34
  • 1
    People can't say this often enough or loudly enough: when you hear the phrase "financial adviser", replace it in your head with "financial product salesman." It'll save you a lot of pain.
    – user27684
    Commented Jul 7, 2016 at 23:35
  • Don't do it. Commission based financial advisors ALWAYS suggest variable annuities because there is a huge financial upside for the advisor that sells them. These are almost universally a bad investment except in some rare circumstances for super rich people looking for additional tax shelters. Doing it INSIDE a tax sheltered account is ludicrous.
    – JohnFx ♦
    Commented Jul 8, 2016 at 19:16

1 Answer 1

Reset to default
8

To start, VAs are governed by the same body that oversees insurance, different from those who oversee, say, Mutual Funds and ETFs. This isn't bad, in and of itself, but it makes disclosure less than transparent. It's not like you can tell us the product, and I can just look it up, as I can the prospectus for an ETF.

All that said, in theory, part of the benefit of the VA is the tax deferral, and higher limits than any of the usual retirement accounts. In other words, part of the fee is explained away by the fact that the tax deferral provides part of the long term benefit. There's been ongoing discussion among regulators that putting VAs inside an IRA or 401(k) should be prohibited. If any salesman of such a product can explain why this actually makes sense, I'm happy to listen. As far as I am concerned, you were swindled, and I wouldn't be surprised if the local attorney general was happy to hear from you.

Yes, you should transfer the funds and keep them inside an IRA.

With friends like that....

Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .