Dollars and Sense - 6/20/17
>> joy: welcome back.
Bruce porter joins us now for this week's "dollars and sense."
Thanks for coming in.
Good to see you >> guest: well, it's good to be here.
>> joy: yes, it is.
Blu current, new furniture here.
This is great.
>> joy: a little bit of everything.
Now, we're going to talk annuities.
>> guest: yes.
>> joy: my parents are getting older.
Their annuity accounts are reaching the end of their periods.
What should i do with the money?
And what should i take into consideration before making a decision?
So first of all, what is an annuity quick, for the people who don't know?
>> guest: that's an insurance contract that involves your money.
It's an investment contract used for various things.
Long-term income accumulation, yada yada.
All that stuff >> joy: is it right for younger people, older people?
It depends on your goals and objectives.
It depends on what you're wanting to accomplish.
In this situation, they're getting older.
And it's through their -- the term of the annuity.
And it's basically not expiring, but it's the -- the companies are giving them options.
What do you want to do?
Your parents are older.
We know we're going to have to pay this out at some point.
Do you want to renew it, or do you want to take it?
Or they give you options.
>> joy: sounds like the mom and dad have told this child to figure it out for them.
>> guest: figure it out.
>> joy: i would have think they would have done that.
>> guest: it happens all the time.
The things you have to immediately think about are the tax ramifications.
Non-qualified annuities, the only thing that would be taxed, would be the gains above the bases.
So that might not be as significant as an ira annuity.
Let's say your 93 year-old dad has $500,000 in an ira annuity, if you roll out of that, you can't take it in cash and pay bills with it.
You've got to put that in a cash ira due to his age.
Because it's going to be taxed if you take it.
So i'm sure it's -- if it's an ira, it's generating required minimum.
Probably close to that 9%, 9.5% level per year.
So those are the things to think about.
Now, really, what are you going to do with the money if you're yields are higher where it's at than current cash?
At those ages, you have very limited options.
So i'll give you an example.
I've had this come up twice.
>> joy: have you?
>> guest: in the last two weeks.
>> joy: wow.
>> guest: one example, their current yield on their annuity is 4.93.
And their current cash is paying 1.05.
Now, it's common sense.
>> joy: obviously.
>> guest: you wouldn't want to move, even at that age, move out of that annuity if you're making 4.95.
Now, here's the caveat to that: the annuity is through its term.
So it's fully liquid growing 4.93.
It would make sense to just leave it there, because it's fully liquid.
>> joy: okay.
>> there are no penalties to full it out, things like that.
It would not make sense to pull it out and put it in your checking account, making .2 or a cd making 1.0 or 1.5 >> joy: can you take out what you need?
>> you can take out what you need.
Again, as you pull money out of an annuity, if it's an ira, it's taxable.
If it's non-qualified, all of it would be taxed until you get to your bases or a formula to that effect.
So you have to think through the transaction.
I recommend she call the company.
Find out exactly where me stand.
If it's through the surrender period, you can renew it with a company.
The surrender period doesn't normally start over.
If you want to roll out of the annuity and keep it deferred, it would have to go into another annuity.
I caution you not to do that because it would start all over again >> joy: it's different for different companies.
Would they say you have to leave it here for another five or ten years?
>> if you rolled it out.
The problem with that, you would have a hard time finding a company at 93 or 88 that would accept that money.
>> joy: interest.
>> guest: it becomes an issue.
Chances are the answer is to leave it where it's at once you know the details if it's out performing your current cash accounts.
If it's doing better than what you can get elsewhere and it's liquid, leave it there, because it's deferred >> joy: don't worry about it and use it.
>> guest: if something happens to mom and dad, you're going to receive the annuity in full.
If you're the child and you inherit the ira, we talked about stretching the ira, you can stretch the ira and create wealth into your retirement.
>> joy: you can do that.
Unless mom and dad need that money or long-term care >> guest: don't hesitate to call and ask for help.
>> joy: don't guess at this one if you don't know.
If you have a financial question, e-mail him ott [email protected]
He'll answer your question on the show >>> coming up, kelly is sharing a family recipe during her pin of the week.
This one a perfect for strawberry