Your money growing tax-deferred is one of the best if not the best feature of a 401(k). When you choose to rollover to an IRA, your money is still growing tax-deferred. That’s it, say no more. That’s why it boggles my mind that retirees are tricked into putting their 401(k) money into variable annuities. The sales pitch from the broker is, one, you’ll get money sent to you every month and two, your investments will grow tax-free. Well they’re tax free anyway.
“It’s scary. There are days when I go to sleep and I can’t stop thinking about it,” says Maria Lew, a retiree from AT&T. She was advised by an broker at Royal Alliance Associates, owned by AIG, to rollover her 401(k) and invest in a combination of variable annuities and a closed-end real estate fund. I can’t imagine a more toxic mix for anyone, never mind a Ms. Lew. She used to have around $400,000. It’s now worth $100,000.
There’s plenty of blame to go around in the case of Maria Lew. The broker claims her withdrawal rate was too high, and that may very well be the case. But let’s not forget that brokers typically get between 6 to 7 percent commissions on the money invested in variable annuities and closed-end real estate funds. If anyone ever suggest to you that you should rollover your 401(k) into a variable annuity do not even listen to what they have to say.
If you have a retirement story to tell me email me at firstname.lastname@example.org.