Rollover of Annuity IRA to Roth IRA
I am about to rollover my Anuity IRA with Midland National to a Roth IRA through Atlantic Retirement Services. My Midland account is worth $183,500.00 and when I roll it over it will be worth $155,00.00 with the penalty fee (17%) taken out. I will have to pay about $31,000.00 in taxes spread over 2 years (2011 and 2012). However, I was told that after a year I will receive a 14% bonus and 4.0% interest every month thereafter which will restore my original amount of $183,500.00. I will then be able to receive a lifetime income thereafter without paying taxes on this withdrawal. I am now 73. Is this a wise investment?
Permalink Submitted by Alan Spross on Tue, 2010-02-02 23:53
Will leave the merits of the new Roth annuity to annuity experts.
However, before you pull the trigger on this:
1) Be sure you have taken your 2010 RMD, which you must take prior to any conversion. If you have other traditional IRAs, the RMD for all your TIRAs could come from the other IRAs, but they must still be taken out prior to conversion.
2) Did you consider simply converting your Midland annuity to a Roth IRA and eliminating the surrender charge? If so, get a figure for the taxable amount of the conversion because certain fringe benefits must be considered, not just the surrender value.
3) Note that the conversion may either increase your Medicare Part B premium in 2013 and 2014, or taxation of SS benefits in 2011 and 2012. You probably would not be hit with both since they are triggered at quite different AGI levels.
4) If taxes are increased by a large amount in 2011, what will it take to recharacterize the conversion?
Permalink Submitted by Peter North on Tue, 2010-02-09 20:03
I would like to provide a slightly more blunt response to this request.
If the terms of the income to be derived from the annuity are similar (% guarantee), converting to a Roth makes little sense under your circumstances. Paying you an upfront bonus now is just a sales incentive to get you to sign on. There are no free lunches in this world and I suspect that you are paying the lunch bill for someone else through this transaction, as well as a higher government tab. You indicated in your note that you wanted income, if you need the income then I assume you are in a relatively low tax bracket (
Permalink Submitted by Al Fry on Wed, 2010-02-10 00:22
I agree with Alan. 17% is a hefty fee that is hard to overcome in earnings. You can convert the annuity to a Roth without paying any fee, just the taxes. Then even you only earn 3% on your money, that would be equivelent to a 20% comparative gain.