Dealing With a Bad Situation
If you're convinced that you made a mistake when you bought a variable annuity, what should you do?It's rarely worth paying the 10% tax penalty to get out before age 59½.
If you're convinced that you made a mistake when you bought a variable annuity, what should you do?
It's rarely worth paying the 10% tax penalty to get out before age 59½. But that doesn't mean you're locked into the same policy until then. It does mean that you'll have to do more shopping in the variable-annuity marketplace. Once most of the surrender period is over -- so you don't forfeit as much as 5% to 9% of your principal -- you can make a tax-free exchange (called a 1035 exchange) to another variable annuity that has lower fees and better performance. As with an IRA rollover, the money must move directly from one annuity company to the other to avoid the tax hit.
If you're older than 59frac12;, you need to get a fix on the tax liability you would face if you cashed in the policy. Remember, the difference between what you invested and the current value will be taxed in your top bracket. It's possible that the high tax cost of cashing in will make the ongoing annuity fees seem a small price to pay to keep all your money working for you.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
You may want to begin tapping the annuity rather than other sources -- such as an IRA -- as your income needs require. Although traditional-IRA withdrawals are generally fully taxable as are annuity payouts, those accounts don't carry the extra fees associated with annuities.
When Annuities Can Work
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Kiplinger Special: The Long-Term Future of the U.S. Economy
The Kiplinger Letter Kiplinger's report into what it will take the U.S. to maintain a healthy economic growth rate.
By David Payne Published
-
Fed Rate Cuts Still on Hold
The Kiplinger Letter With inflation stubbornly elevated, the Federal Reserve will keep interest rates high for now.
By David Payne Published
-
A Spotlight on the Pacific States: The Kiplinger Letter
The Kiplinger Letter Most Pacific states are seeing good job growth in multiple sectors including tourism, hospitality, and construction.
By David Payne Published
-
The Robots Are Coming... But Not For a While
The Kiplinger Letter There’s excitement in the tech sector over the potential of humanoid robots, but widespread adoption is likely to be years away.
By John Miley Published
-
Farmers Face Another Tough Year As Costs Continue to Climb: The Kiplinger Letter
The Kiplinger Letter Farm income is expected to decline for a second year, while costs continue to up-end farm profitability.
By Matthew Housiaux Published
-
A Spotlight on the Mountain States: The Kiplinger Letter
The Kiplinger Letter Most Mountain states are seeing good job growth in multiple sectors from healthcare, energy, and semiconductor production to farming and government.
By David Payne Last updated
-
A Spotlight on the Plains States: The Kiplinger Letter
The Kiplinger Letter The labor market is tight in the Plains states and outside of healthcare and construction most sectors are flat or down.
By David Payne Published
-
Kiplinger's Commodities Forecast
The Kiplinger Letter Following a rocky few years for markets, we expect commodities to be less volatile in 2024, as a post-pandemic normal finally emerges.
By Matthew Housiaux Published