What's going on everybody? Jeff Rose, goodfinancialcents.com coming back at you. Today I'm doing something a little bit different. Not so much a financial tip, today's is actually more of a financial rant. There are a lot of things in our industry that I get really worked up and the following is a prime example.
I had a client that had left her job. She had taken a new position and she had left her Simple IRA at her old employer. Simple IRA is kind of like a baby 401K for small business owners. My rant or the thing that just got me so worked up was that the owners of the company had taken out this simple IRA with an insurance company. Instead of having traditional mutual funds, they had an annuity product. A lot of people have their own feelings on annuities. I don't really want to go down that path, but here is one instance where I absolutely despise annuities, especially in retirement accounts.
She had been gone for almost three months, and she wanted to roll over her simple IRA to her own IRA. We called the insurance company and wanted to find out if there were any surrender charges because I just had this feeling of there being a surrender charge. Sure enough, lo and behold there was.
She had to pay a 6% surrender to roll her money out of her old retirement account into her own IRA.
It's her money. It's the money that she put aside, but to get access to it to roll it over she had to pay a surrender because it was in this annuity product. To make it worse she had six years before she could roll all her money penalty free. That burns me to no end.
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That's a Dirty Word
That is why -I'm going to use it, the hate word- I hate annuities inside retirement plans. I think it's just ridiculous that somebody has to pay a surrender to get access to their own money. Now it's something that she couldn't avoid because that was her retirement account and she was doing the right thing by saving for retirement. Unfortunately, she found a better position and left. Now to get access to that money she has to pay a very sizeable, lump sum, surrender charge to get that money.
The insurance company did come back with her being able to do a 10% free withdrawal for that money, so we still have to do 10% each year. We can do it, and we still haven't decided what were going to do, but nonetheless that just burns me.
Just be conscious of that. I'm not saying don't utilize it because it is still a retirement savings tool for you. If you have no other options out there, I guess it's better than saving for nothing. But still it's my rant. I do not like annuity products inside retirement plans, especially those that require a surrender to get access to your funds.
This is Jeff Rose, Good Financial Cents with a good financial rant. Be sure to check us at the blog, and if you've not checked us out on Facebook yet, please check out our Facebook fan page. Give us the big thumbs up. We'll see you around. Take care.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.