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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free 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
-
Are T-Mobile's Prepaid Perks a Home Run or a Strikeout?T-Mobile's prepaid lineup promises MLB.TV, T-Mobile Tuesdays and hotspot data. But do the perks make it worth switching?
-
Verizon Home Internet Is Offering Free Tech to New CustomersVerizon’s latest home-internet promotion includes free tech, but the real savings depend on pricing, speed needs and how long you stay.
-
Retirees in These 7 States Could Pay Less Property Taxes Next YearState Taxes Retirement property tax bills could be up to 65% cheaper for some older adults in 2026. Do you qualify?
-
What to Expect from the Global Economy in 2026The Kiplinger Letter Economic growth across the globe will be highly uneven, with some major economies accelerating while others hit the brakes.
-
Shoppers Hit the Brakes on EV Purchases After Tax Credits ExpireThe Letter Electric cars are here to stay, but they'll have to compete harder to get shoppers interested without the federal tax credit.
-
The Economy on a Knife's EdgeThe Letter GDP is growing, but employers have all but stopped hiring as they watch how the trade war plays out.
-
Banks Are Sounding the Alarm About StablecoinsThe Kiplinger Letter The banking industry says stablecoins could have a negative impact on lending.
-
Japan Enters a New Era of Risk and ReformThe Kiplinger Letter Japan has entered a pivotal moment in its economic history, undertaking ambitious policy and structural reforms to escape from decades of stagnation.
-
After Years of Stagnant Growth, Hope Emerges for EU EconomyThe Kiplinger Letter Can a German fiscal push outweigh French political peril?
-
Trump's Economic InterventionThe Kiplinger Letter What to Make of Washington's Increasingly Hands-On Approach to Big Business
-
AI Start-ups Are Rolling in CashThe Kiplinger Letter Investors are plowing record sums of money into artificial intelligence start-ups. Even as sales grow swiftly, losses are piling up for AI firms.
