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Posted by Ed on October 24, 2006, 8:33 am
On another board there was a lot posted about annuities. I posted a link to
a site that pointed out some of
the pro's and con's.
http://registeredrep.com/annuities_ins/finance_pros_cons_annuities/
I got a reply from Elle (a regular poster here):
"The piece linked is dated 2002. Because of the tax law changes of 2003, for
one, many of its arguments are invalid."
I replied:
" Which of its arguments are invalid?"
Elle replied:
"Just about any that refer to tax law, like I wrote above."
I replied:
Ok. Points related to taxes:
1. Annuities grow tax free until withdrawal.
2. 401k & 403b plans allow pre-tax contributions.
3. 10% penalty for distributions before age 59.5.
4. Earnings will will be taxed as ordinary income.
That pretty much is all the article says that has anything to do with taxes.
Which of them are now invalid?
Elle, hasn't responded. Does anyone know if any of the 4 points above are
untrue. I took her advice and checked both Quicken and Motley Fool on the
subject and it appears that all 4 points are still valid. Does Elle know
something that I don't about taxes and annuities?
I understand that the 10% penalty can be avoided if you annuitize but
withdrawals prior to age 59.5 will be subject to a 10% penalty.
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Posted by bo peep on October 24, 2006, 3:37 pm
Ed wrote:
> withdrawals prior to age 59.5 will be subject to a 10% penalty.
Except for a 401k when you left your last job after reaching age 55,
there is no 10% penalty.
John Cowart
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Posted by Elle on October 25, 2006, 1:46 am
Ed, I responded that the 2003 tax law changes are what make
the 2002 site's arguments on tax law invalid. You should
check on these changes, obviously, then google for the
effects of these changes on deferred variable annuities in
particular. I did not advise anyone to check Quicken nor
Motley Fool on the subject, though they each may have useful
information.
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Posted by Ed on October 25, 2006, 5:02 am
> Ed, I responded that the 2003 tax law changes are what make the 2002
> site's arguments on tax law invalid. You should check on these changes,
> obviously, then google for the effects of these changes on deferred
> variable annuities in particular. I did not advise anyone to check Quicken
> nor Motley Fool on the subject, though they each may have useful
> information.
Elle, the author didn't present any arguments in the article. Four points
were made though.
1. Annuities grow tax free until withdrawal.
2. 401k & 403b plans allow pre-tax contributions.
3. 10% penalty for distributions before age 59.5.
4. Earnings will will be taxed as ordinary income.
All four of them are still true, still valid. I don't see the point you're
trying to make.
It is true, you didn't suggest any website by name:
"I do think it is a worthwhile read as long as people bear in mind this
significant change in tax law and also read, say, half a dozen more recent
articles on annuities from diverse sources. It's a much discussed subject on
the net."
That you are being evasive is not the issue. The important thing was to find
out which of the above points were now false because of tax law changes. I
think everyone is in argreement that none of them are false, well, except
for you.
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Posted by joetaxpayer on October 24, 2006, 4:02 pm
Ed wrote:
> On another board there was a lot posted about annuities. I posted a link to
> a site that pointed out some of
> the pro's and con's.
> http://registeredrep.com/annuities_ins/finance_pros_cons_annuities/
>
> I got a reply from Elle (a regular poster here):
> "The piece linked is dated 2002. Because of the tax law changes of 2003, for
> one, many of its arguments are invalid."
>
> I replied:
> " Which of its arguments are invalid?"
>
> Elle replied:
> "Just about any that refer to tax law, like I wrote above."
>
The one thing that strikes me from the site is with regard to a fixed
annuity;
"Norman Chiodras, founder of Retirement Planners Inc. in Oakbrook, Ill.,
occasionally uses fixed annuities for clients as an alternative to CDs.
“They often pay a premium over CDs, and they're safer than bonds because
their value doesn't fluctuate,” he says."
First, if they do not pay a premium over CDs, then what would be the
point? I advocate immediate annuities as I see 8% for a 60 year old vs
the 5.xx% CDs out there.
It may be nit-picking, but his remark about 'safer' is absurd. The
annuity gives the same annual return year after year, as would a bond.
The trade off with the annuity is to have no return of the face value in
return for a higher annual payout. The bond would have given out a known
value at maturity. I can say that the payment stream from the annuity
does fluctuate in value as inflation chips away. (Mostly down as we
haven't seen disinflation in some time)
JOE
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