Surrender Variable Annuity with SEPP

L1: Surrender Variable Annuity with SEPPI purchased a variable annuity with qualified money 2 years ago and immediately took a sepp. I am 54 years old. Can I surrender this annuity and roll the money directly into another IRA (not funded with a variable annuity) and keep the sepp going so as not to run afoul of IRS ? Thanks for any help.2005-06-18 14:25, By: MB, IP: [65.164.207.46]
L2: Surrender Variable Annuity with SEPPNo problem-have done this for many clients. Whatever the surrender value of the VA is-if there is one-will be rolled over or transferred to the new custodian. The fact that there is a surrender charge not being rolled over is no problem just as there wouldn’t be if you were rolling over one MF to another and paying a deferred sales charge.2005-06-19 19:49, By: john, IP: [68.187.171.50]

L2: Surrender Variable Annuity with SEPPHello MB:
John is correct that you may make the change and not disturb the SEPP. However, because you haven’t given any reasoning for making the move,before you pull the triger and make the change, please consider the following:
1. What will be the dollar cost for surrendering the current VA?
2. What are the dollar cost to purchase the new investment?
3. What are the annual fees for both the VA and the new investment? Said another way, what are the annual, dollar costs to operate the VA and the new investment?
My concern is that you may be giving up a significant amount of money to make this move, especially if it will cost you say 6% to surrender the VA and then pay between 4% and 6% to purchase the new investment. This could add up to a year’s worth of distributions. You may want to consider waiting a few years until the VA surrender charge reduces to make the move.
Hope this helps.
Jim2005-06-20 12:58, By: Jim, IP: [70.184.1.35]

L2: Surrender Variable Annuity with SEPPThanks for the helpful replies. I have not decided on anything yet and rest assured that I will investigate all fees and drawbacks in any new investment.I still have 5 years of declining surrender charges and I”ll be sure to factor them into any move.2005-06-20 15:55, By: MB, IP: [65.41.246.99]

L2: Surrender Variable Annuity with SEPPMB: Why did you use a VA as the investment medium in a tax-deferred account in the first place?2005-07-05 18:58, By: Joel, IP: [68.197.111.95]

L2: Surrender Variable Annuity with SEPPJoel
I used the VA because I was naive. I’m in the process of making myself less so now. Better late than never!2005-07-05 19:59, By: MB, IP: [65.40.239.9]

L2: Surrender Variable Annuity with SEPPThe rollover market is extremely profitable for the wire houses. Some reps do nothing else but a rollover business. It’s long overdue for these plan sponsorsto step up to the plate and give an educational seminar prior to dispersing a lump-sum distribution. 2005-07-06 09:52, By: Joel, IP: [68.197.111.95]

L2: Surrender Variable Annuity with SEPPMB:
Before you beat yourself up as being ””naive,”” please consder all aspects before you make a decision. May I suggest a ””cost-benefits analysis”” of your current and any future investment decisions. Understand that I am not advocating using any one type of investment over another, especially since I am not your advisor and don””t know all of the details of your personal situation. And don””t tell me because I””m not going there with you or anybody else posting on this site.
Many people make the mistake of stating that you pay extra for ””tax deferral”” when you use an annuity, variable or fixed, to fund an IRA, and this is false. Congress passed laws which make cash value buildup in insurance products, like life insurance and annuities, tax deferred. When Congress created the retirement plans, like IRAs, etc, they likewise declared the cash buildup to be tax deferred. Now when Congress passes laws, they make them applicable to all citizens, and the cost to the individual for these Congressional benefits is zero. So, stating that one ””pays twice”” for tax deferral when using an annuity to fund an IRA or other Qualified plan is wrong. Remember that zero times zero still equals zero.
When you buy an investment, regardless of what it is, you are buying a ””benefit”” of that investment. The costs to buy and any ongoing fees to maintain a mutual fund or stock or bond or whatever for your IRA affords you certain benefits. Likewise, the cost to buy and any ongoing fees to maintain an annuity to fund your IRA affords you certain benefits, most of which are not available in other types of investments. You buy each of these types of investments for the benefits they afford the investor, and that is what you should focus on when making an investment decision. This is the ””cost-benefit analysis”” I referred to in my opening paragraph.
In closing consider this: If your only focus is low cost, then find a truly low-cost, no-load fund or even ETFs, and do it all by yourself. But if you need help putting together a plan, then seek the advise of a professional, and be ready to pay a fee or commissions, either of which is OK, for the services. But most of all I would advise keeping an open mind about which investments you use. Do your ””cost-benefit analysis”” to make your final decision.
Jim2005-07-06 10:23, By: Jim, IP: [70.184.1.35]

L2: Surrender Variable Annuity with SEPPThanks Jim
My problem with the VA is the 1.52% mortality charge which is on top of the average .95% administration fee in each sub account. My understanding is that the only value to my benificiary for this insurance charge would come if my VA has lost value and I happen to die at that time. I think this is too much money for what would in all probability be little or no value. I’ve heard the stories about people who benifitted from this after the big drop of 2000-2001,but I don’t think it will happen.Remember I have to die before a recovery. I think the certainty of having substantially less money after 20 or so years because of this added fee is the real worry.2005-07-06 19:12, By: MB, IP: [65.164.203.136]

L2: Surrender Variable Annuity with SEPPHi MB. I had intended to respond to your last post sooner but other duties took precidence.
By all means make your investment decisons based on what is most important to you. If you see no value in the death benefit or other living benefits of a VA, then you probably need something else. But the structure of living benefits in VAs has evolved over the last few years that you should give this aspect serious consideration before dumping either this or any other VA. I suspect you will be about age 61 (54 + 7yr surrender time) whenthe CDSC is zero and you can make the move without contract penalty. If the industry continues to evolve during the next few years as it has over the past few years, you may see some benefits of the VA that appeal to you.
My suggestion at this point is to use this time to thoroughly study ALL of the benefits of using the VA and see if you find any value to you and your family. If, after you analysis, you don’t find value then by all means do something different. From what you have written I’m confident that you will do your homework and make the right decision for you and your family.
I’m not advocating not making a change. But I am advocating doing your homework and making the best informed decision you can at thetime of your next decision. Don’t beat yourself up for the previous decision.
Finally, for those getting ready to pounce on me, I will always believe that the best investment for anyone is the investment which is best for the client, given the information provided by the client at the time. Over time this ‘best investment’ may change as the situation changes. All options are on the table.
Jim2005-07-15 08:39, By: Jim, IP: [70.184.1.35]

L2: Surrender Variable Annuity with SEPPA very interesting question. Before making any changes, check out what features and benefits ar contained in your current VA. Since you have 5 years left of surrender charges, your’s is probably relatively new. As is mentioned on this thread, many changes have occurred recently to VA’s. Many Death Benefits offer much more than simple return of principal. Other’s also offer Living Benefits which can be very usefull in a SEPP arrangement. They all differ from contract to contract, so be sure to seek the advice of an expert in this field.
Which brings up another question. If you have a VA with a Death Benefit guarantee of, say, $200,000, and the actual contract value (because of a down market) is only $150,000, can you use any portion of the higher Death Benefit value if you recalculate annually? Does the IRS use this higher amount in calculating a RMD if you’re over 70 1/2 (which would be unaffected by SEPP so maybe out of the scope of this forum, but still related)? I heard in 2006 they might start including these values. Anyone know? Thanks.2005-07-18 11:18, By: jpedott, IP: [70.56.34.26]

L2: Surrender Variable Annuity with SEPPCorrect me if I’m wrong, but the value of the death benefit is zero unless you are dead. 2005-07-18 11:24, By: Gfw, IP: [172.16.1.84]

L2: Surrender Variable Annuity with SEPPTo Jim:
Thanks for all of your replies. I find them helpful.
to Gfw:
Your comment is correct but irrelevant
2005-07-18 11:44, By: MB, IP: [69.34.92.245]

L2: Surrender Variable Annuity with SEPPPlease re-read the question…
…can you use any portion of the higher Death Benefit value if you recalculate annually? Does the IRS use this higher amount in calculating a RMD if you’re over 70 1/2…

The answer is actually quite revelant since all calculations of SEPPs and RMDs are based on Market Value and theonly time the death benefit is reflected in the market value under current regulationsis after death.
2005-07-18 11:52, By: Gfw, IP: [172.16.1.84]

L2: Surrender Variable Annuity with SEPPI was informed that the IRS was close to using a death benefit (discounted to present value) in 2006. I think they have shelved it for obvious reasons. You’re not dead, and if you annuitize the contract to trigger the living benefits, there is no death benefit. But you never know with the IRS, if it doesn’t make sense, they probably will do it. If they do figure in the death benefit, a case could be made that it could also be figured to enhance the payout of a CRT (which they currently don’t allow). I guess it’s wait and see…2005-07-22 13:16, By: jacko, IP: [70.56.34.26]