Your Survival Guy’s a big fan of Fidelity Investments, as you know from here, here, and here just to point out a few reasons why. But Fidelity is also a 401(k) powerhouse. I know this because Your Survival Guy worked in Fidelity’s 401(k) division in the mid-90s. So I’m not thrilled to write this, but it’s a big-time foul ball.
Your Survival Guy’s not a fan of annuities, especially in a 401(k) or IRA. It’s a tax-deferred vehicle already. It doesn’t belong in a tax-deferred account. The minute you can get out of your 401(k) and self-direct, do it. This is yet another product to charge higher fees and lock in money. You can do better than this.
Anne Tergesen reports on the products’ higher fees and lower legal protections in The Wall Street Journal:
Workers who buy annuities should examine all fees and features before purchasing, say financial advisers. Among the questions to ask are when payments start, their size and whether an individual can get their money back if they change their mind or need the cash.
The income-producing funds are coming to market a few years after Congress made it easier for employers to offer annuities in 401(k) plans. The law protects employers that follow certain procedures from being sued if they select an annuity from an insurance company that later fails to make the promised payments.
In a recent survey of 99 employers conducted by investment consulting firm Callan LLC, 13% said they offer an annuity as a way to take a distribution from a 401(k) plan, up from 11% in 2020. Among those without an annuity, none had immediate plans to add one.
Following a wave of lawsuits over 401(k) fees, many employers worry about the fees insurers typically charge for annuities, said Jana Steele, a 401(k) consultant at Callan.
Fidelity plans to introduce a service this fall that would allow 401(k) participants to purchase institutionally priced income annuities directly from their 401(k) accounts. The company already offers managed payout funds that seek to provide a regular income to retirees.
Action Line: If you’re currently in a 401(k) and want to take more control of your investments, let’s talk.
Originally posted on Your Survival Guy.