Bibliography - Using a Deferred Annuity to Fund a Qualified Retirement Plan 1

8/11/2019 Bibliography - Using a Deferred Annuity to Fund a Qualified Retirement Plan 1

1/17

Bibliography

Merits Of Using A Deferred Annuity To Fund An IRA,

401(k), 403(b) Or Other Tax Qualified Retirement Plan

Table 1 (independent views) Part 1 Part 2 Part 3 Part 4 Part 5 Part 6

Table 2 (annuity industry views) - Part 1 Part 2

Table 1, Part 1

(independent views)

Citation Summary Excerpt

315 Raul Amaya, Variable AnnuitiesNot First Place You Should

Invest, EL PASO TIMES,December 4, 2006

Because IRAs are either tax deferred or tax-free, variableannuities, in my opinion, are not suitable for IRAs. Theyre

suitable for people coming into large lump sums who havealready maximized their contributions to their IRAs and

who could benefit from the tax deferral and/or want theguarantees of annuities.

314 Suze Orman, Adviser Must

Serve You, Not Self, DETROITFREE PRESS, November 12,2006

The syndicated columnist writes that [a]nyone who tell

you to buy a variable annuity for your IRA is clearly notlooking out for your best interest. The attraction of VAs isthat you get tax-deferred growth in mutual funds. That is,

no taxes while the money is invested in the VA. Buteverything in your IRA is already tax-deferred anyway. It isabsurd to buy a VA inside your IRA. Why would the

adviser recommend this move? I bet you know where I amgoing: Once again, there is a nice commission to be made.

313 Stewart Welch, Reasons To BeWary of Annuities,

BIRMINGHAM NEWS, October15, 2006 at 4B

Variable annuities are a product that is rarely sought out byinvestors but instead is bought after someone has `pitched

the product.

Some annuities are sold in IRA accounts which means you

have placed a sheltered investment (your IRA) insideanother sheltered investment (the annuity) resulting in anunnecessary layer of fees.

The author is founder of The Welch Group LLC, a fee-only

wealth management firm.

312 Walter Updegrave, Retirement

Deals You Can Do Without,MONEY, September 2006 at

It rarely makes sense to put your IRA rollover into an

annuity if youre switching jobs or still investing for aretirement thats years away. After all, your gains arealready sheltered from taxes in an IRA. But that doesnt

ography - Using A Deferred Annuity To Fund A Qualified Retirement... http://www.insurancelaw.com/bib-qualified-ann

7 1/15/2014


2/17

stop insurers and advisers from touting annuities as an idealrollover investment.

The guaranteed minimum income benefit or GMIBfeature of some variable annuities is of questionable

financial value because you must pay upwards of 3% ofyour account balance every year for it (M&E fee plus ridercharge), yet the income youre being guaranteed is

underwhelming, to say the least, because insurers base it onultralow payout rates designed more to protect them than toprovide income to you.

311 Buz Livingston, A Lesson For

Teachers, THE MOTLEYFOOL, August 30, 2006

[M]ost 403b plan choices are limited to variable annuities.Yep, you are putting a tax-deferred annuity inside a taxdeferral mechanism. Its like taking a shower while wearing

a raincoat.

310 Ask Basic Questions In Planning

For Retirement, CONTRACOSTA TIMES, August 21, 2006at F4

I have never met with anyone who owned an annuity who

understood what they were invested in, why they wereinvested in it and what fees they were paying. Afterlearning about their annuitys features and fees, most peopleare upset. If annuities were simpler to understand, most

people would not buy them.

Investors are frequently sold annuities within their IRAs ortheir retirement plans at work. . . . Placing an annuity in anIRA, 403(b) or 401(k) plan is ludicrous because you arealready receiving the tax-deferred benefit free of charge.

309 Variable Annuities: Have AnIRA or 401(k)? Thats Double

Duty, WASHINGTON POST,July 30, 2006 at F04

`With an IRA, you dont need [a variable annuity]. Whilethere is also a death benefit, the death benefit is so

expensive, you would be better off separating the deathbenefit from the investment and buying insurance

separately, said Veena A. Kutler, a Bethesda-basedfinancial planner.

308 Kathleen Lynn, RetirementsHigh Price; How Fees Can Cut

Your Pension, THE RECORD

(Bergen County, NJ), July 9, 2006at B01

Teachers are targeted for variable annuity sales inside403(b) accounts, but the higher fees shave thousands of

dollars from their nest eggs. Both the SEC and the NASD

have issued warnings about annuities high fees. Thesecurities regulators say annuities may not be suitable inretirement plans, because retirement plans already offer taxdeferral.

307 Jan L. Warner and Jan K.Collings, Tax-deferred AnnuityNot Right Investment For ThisCouple, PITTSBURGH

POST-GAZETTE, July 2, 2006

Because of the costs involved, we see no sound economicreason to purchase a tax-deferred annuity with tax-deferreddollars in an IRA or other pretax account other than togenerate a sales commission and purchase the privilege of

being charged additional fees.


7 1/15/2014


3/17

306 Jim Schlagheck, The Power of

Variable Annuities,

THESTREET.COM, May 22,2006

Some 401(k) or IRAs allow you to invest in an annuity.That generally makes little sense. . . . If you currently have a

`shelter within a shelter, consult a tax specialist about thewisdom of making a change.

305 Margaret E. Haering, A BadMarriage? Variable Annuities and

401(k) Plans, WORKFORCEMANAGEMENT, May 2006

The bottom line is simple: When suitors come calling witha variable annuity policy for your 401(k) plan, there are

many good reasons to resist taking the plunge. Like a badmarriage, variable annuities may last longer than you want

and could be expensive to end.

For instance, a plan sponsor that wants to offer a lifetimeincome option could do so at lower cost by providingretiring employees with information on purchasing animmediate fixed annuity.

304 Martin Krikorian, SevenDrawbacks of VariableAnnuities, THE LOWELL SUN,

May 5, 2006

If youve talked to a broker or agent about rolling overyour retirement account, theres a good chance the adviserrecommended you invest in a variable annuity[.]

When an adviser, agent or broker suggests a variable

annuity for your rollover or IRA account, run -- dont walk-- out of the office. Since IRAs already are tax-advantaged,a variable annuity will provide no additional tax savings. Itwill, however, increase the expense of the IRA while

generating fees and commissions for the broker orsalesperson.

The author is a registered investment adviser and presidentof Capital Wealth Management.

303 Josh Friedman, Seniors Get A

Hard Sell On Fee-LadenAnnuities, LOS ANGELES

TIMES, April 24, 2006 at A1

Dorothy Dot Eddy, 72, a retired middle manager for an

electronics maker, says she got taken in by a free lunchseminar at the Chart House, run by an agent pitching

annuities. Then, the agent invited the attendees back to hisoffice for a personal consultation with the promise of freecoffee and fresh-baked cookies. She agreed to use her IRAmoney to buy an annuity, but was never told that the

annuitys tax deferral was essentially worthless to her,

because her savings already were protected from taxes in anIRA.

302 Eric Tyson, Do I Have Enough

Life Insurance?, SAINT-PAULPIONEER PRESS, April 8, 2006at 2C

With money already inside a tax-sheltered IRA account,

you should not then invest in an annuity. The reason:Youre paying extra costs for the tax shelter of an annuity,which is not needed and is redundant with an IRA account.

301 Frederic G. Marks, Tax-Shelter Tango: Keep your IRA,BARRONS, March 27, 2006

Although variable annuity prospectuses in recent years havestarted to disclose that no one should invest IRA money inan annuity for tax shelter. . . . more than 50% of funds now


7 1/15/2014


4/17

in variable annuities have been transferred from IRAs andother tax-sheltered vehicles, presumably at the urging of asales agent. The enormous pool of retirement funds is a

tempting target for agents seeking fat commissions.

300 Russ Wiles, Variable Annuity InIRA Offers Little, ARIZONA

REPUBLIC, March 19, 2006

Mr. Wiles disagrees with NAVAs position that annuityinsurance guarantees can offer great value for IRA

investors. Other than a terminally-ill person seeking tomaximize the value of the nominal death benefit feature, ingeneral, the annuity-inside-an-IRA argument isnt

compelling, especially if its cited in hopes of selling you ahigher-cost investment that you dont need.

299 Archie Richards, Annuities ABum Deal For Some,

REPUBLICAN-AMERICAN(Waterbury, CT), December 18,

2005

A readers accountant suggested that she needs a retirementplan with tax advantages, and recommended a MetLife

variable annuity.

Accounting organizations made a big mistake when theyauthorized accountants to sell investments. The conflict ofinterest is too great. The annuity is a bum deal becauseyou do not need to pay the costs of the annuity to have an

IRA. The death benefit of the annuity isnt worth much, soforget the variable annuity.

298 Neil Weinberg, Shelter Skelter,FORBES, December 12, 2005 at

148

The insurance features of variable annuities dont do muchto make a tax-deferred annuity a good retirement

investment. . . perhaps the most galling and unnecessaryuse of variable annuities is to fund retirement accounts thatare already tax deferred, a costly variety of overkill.

Pacific Life sold 54% of its variable annuities to personsfunding IRAs and other retirement accounts in the first half

of the year. In May, a federal court in Brunswick, GAcertified a nationwide class of 120,000 investors who weresold Pacific Life variable annuities for funding retirementaccounts without proper disclosures or suitability screening.

Pacific Life says in a written statement that it stronglydisagrees with the claims.

297 Eric Tyson, An IRA Invested InAn Annuity, SAINT PAULPIONEER PRESS, December 1,2005 at 2C

A couple wonders whether they would be better off if theirIRAs were invested in mutual funds rather than variableannuities. The response: since they have the fashionequivalent of wearing a belt and suspenders together, they

should invest in mutual funds and save the unnecessaryexpense of the annuity.

296 Timothy Middleton, TeachersInvestment Plans Flunk,

MONEYCENTRAL.MSN.COM,

403(b) plans could hardly be worse: fees are outrageous,theres no match and theres no oversight. The insurance

companies that dominate this marketplace have done a


7 1/15/2014


5/17

November 8, 2005 terrible job of helping workers, but a masterful one ofconcealing their abuses by simply refusing to reveal them toanyone -- especially the participants whose money they are

frittering away. The annuity insurance charges for thedeath benefit are pure profit for the insurance company

because over long terms, markets are rarely, if ever,down.

295 Mike Clowes, Wrong Pew:Churchs 401(k) Put In A VA,

INVESTMENT NEWS, October31, 2005

A church member was an insurance agent and sold thechurch a variable annuity for funding their 401(k). The

Investment News columnist was asked by another churchmember whether this made any sense.

This is a clear example of a highly inappropriate use of a

variable annuity. . . .The insurance agent, who knew thevariable annuity was for a 401(k) plan, should not have sold

it for that purpose. Obviously, he couldnt resist easymoney. Transactions such as these give variable annuities,

and those who sell them, a bad name.

The article explains that neither the tax deferral orinsurance features of a variable annuity make any sense for

401(k) plan participants.

294 James L. Watt, VariableAnnuities, Retirement AccountsShouldnt Mix, FORT COLLINS

COLORADOAN, September 11,2005 at 2E

The author is a fee-only financial advisor.He says it is not unusual to find that his clients were sold

variable annuities inside their retirement accounts bybrokers at well-advertised brokerage firms. He says this is

inexcusable, and the brokers should know that it isunsuitable. The variable annuity is costly for you andrewarding to the broker.

293 Ray Unger, Are AnnuitiesReally Good for IRAs?, THECAPITAL TIMES (Madison,WI), August 26, 2005

The author is president of Unger Capital Management inMadison, WI.Mr. Unger cautions against making the mistake of putting

one tax sheltered financial product (annuity) into anothertax sheltered vehicle (IRA). The front-end commissions

and annual charges are simply not worth it. He supportshis analysis with historical performance statistics for theS&P 500.

A follow-up article on September 9, 2005 is titled Yes,Annuities Have A Place, Just Not In IRAs.

292 David Futrelle, George Mannes,

Cybele Weisser, 15 DumbMoves, MONEY, July 2005 at84

One of the 15 dumbest things you can do with your money

is [b]uying tax-free bonds and variable annuities for yourIRA. Its like wearing a poncho and carrying an umbrella,only worse. You get no extra tax benefit from the annuity,and the bonds interest will end up being taxed.


7 1/15/2014


6/17

291 Neil Weinberg, Fleecing

Teachers: A Billion-Dollar

Ripoff, FORBES, April 25, 2005at 100

Teachers unions are complicit partners in the sales ofdeferred annuities to 1.5 million teachers at the nations

public schools for 403(b) plans. Unions play a large role inteachers decision making. One source says that Security

Benefit pays the National Education Association $3 milliona year for an exclusive endorsement for its products. TheNew York State United Teachers union receives $3 million

every year to endorse ING as the shops exclusive providerof annuities. Participants end up paying for it throughsubstandard products with high fees.

The main appeal of variable annuities is their tax deferral,yet teachers already have that in their 403(b) plans. AIGVALIC, the largest vendor of retirement savings plans for

teachers, says it has revised its sales literature to moreaccurately portray the product.

290 Walter Updegrave, Was MyMom Conned?,CNNMoney.com, April 12, 2005

The readers mom was sold an IRA annuity. An IRAannuity is really nothing more than buying an annuity ofsome sort and putting it inside an IRA.

You can get the same tax shelter merely by putting themoney into a mutual fund within the IRA rollover account.

So the annuity is redundant. Youre already getting taxdeferral within the IRA, so theres no need for the variableannuity. Now, that redundancy might not be a problem,except for one thing: variable annuities tend to have much

higher fees and expenses than mutual funds.

Variable annuity fans argue that there are other benefitsthat compensate for these higher fees. But I dont think theymake a convincing case. Moreover, if you want toannuitize, I believe its better to wait until youre ready to

draw on that income before buying [an immediate] annuityrather than do it many years in advance.

289 Jack Naudi, Variable Annuities

Arent Worth The High Fees, ST.LOUIS POST-DISPATCH, April

10, 2005

Theres no good reason to offer a tax-deferred product,

like a variable annuity, in a 401(k) or 403(b) tax-deferredplan. If your company does, clip out this column and show

it to your human-resource folks. To them, I say this: Youhave a fiduciary responsibility to your employees, andoffering them a high-fee, tax-deferred investment vehicleinside a tax-deferred account violates that obligation.

288 Harry Gross, Harry GrossColumn, PHILADELPHIA

DAILY NEWS, March 7, 2005

The financial advisor that sold an annuity to the readersparents says the mom cant make withdrawals until the

annuity matures. Harry says the toad who sold them theannuity is trying to hide the fact that there will be a stiffpenalty for cashing in early. . . . Annuities, especiallyvariable annuities, rarely make sense as an investment.


7 1/15/2014


7/17

They never make sense as part of a 401(k), IRA, or othertax-sheltered retirement plan.

287 Rick Miller, One on One withAdam S. Bold of The Mutual

Fund Store, INVESTMENTNEWS, February 14, 2005 at 39

An interview with syndicated radio call-in host Adam S.Bold, founder of The Mutual Fund Store.

Mr. Bold argues that advisors sell variable annuities, despitetheir many drawbacks, because these things pay higher

commissions than just about anything else that acommission broker sells. Theres a tremendous amount ofannuities that are sold in IRA accounts. I believe that that is

on the verge of malpractices; its not illegal, but I dontunderstand why its not.

286 Jeffrie Voudrei, Dont Put YourIRA In A Variable Annuity Part

I and Part II,Guardingyourwealth.net,

February 1, 2005

I believe the only reason a variable annuity isrecommended for an IRA is so the advisor can earn more

money.

The death benefit is the main argument sellers give for theirrecommendation, but this is either the most expensiveinsurance youll ever buy, or it [the variable annuity fees]pays for more than insurance.

The real reason that you are recommended a variable

annuity for your IRA isnt that its better for you. Itsbecause its better for the advisor. If you invest $500,000 ina commission-based mutual fund, the advisors grosscommission will only be about $10,000. The same

investment in a variable annuity would yield grosscommission to the advisor of $30,000-$35,000 or more!

285 Eric Tyson, IRA Is No Place To

Hold an Annuity, SAINT PAULPIONEER PRESS, January 22,

2005 at 2C

The syndicated columnist writes that an annuity should not

be purchased and held within an IRA. It takes 15-20 yearsbefore the tax deferral benefit overcomes the higher fees

when the annuity is held outside an IRA, so why putmoney into an annuity, with its higher fees, when you dontneed its tax shelter? If someone sold you an annuity foryour IRA, Im not surprised. Ive seen this happen far too

often when investors are working with sales representativeseager to earn a commission.

284 Pamela Yip, Saving In TougherTimes, DALLAS MORNINGNEWS, January 10, 2005 at 2D

Bob Stowe, a certified financial planner with StoweFinancial Planning LLC in Plano, TX, evaluates thefinances of Helene Uritz, a flight attendant with UnitedAirlines. Mr. Stowe says Ms. Uritz made a mistake in

purchasing a variable annuity from another financial adviserwith $130,000 rolled over from a tax-deferred retirement

account. `She needs to understand that not all financialadvisers are fiduciaries, and some of them dont act in herbest interests, he said.


7 1/15/2014


8/17

`The normal process of retirement planning is to determineretirement needs, determine the required assets and returnto meet those needs, and implement or modify the

investment program to ensure that the assets will beavailable when needed, Mr. Stowe said. `The variable

annuity in the rollover IRA has violated this process inevery way imaginable.

Ms. Uritz did not need the tax deferral advantage of thevariable annuity, and she doesnt have dependents sothere isnt even an argument that she needed the death

benefit.

283 John Henry McDonald, VariableAnnuities Within IRAs,

News8Austin.com, January 3,2005

Theres no reason to have variable annuities in IRAs,other than generating a large commission for the broker.

Sellers argue that it makes sense because you can convert a

deferred variable annuity into a payout annuity. Well, youcan do that with your mutual funds as well. What I mean

by that is because these dollars are held inside the IRA,there are no taxes incurred when you sell them. So you can

take half of your IRA dollars and buy [a payout] annuitywith them. Or take three quarters of your IRA dollars and

buy an annuity with them.

The author is a certified financial planner and President ofAustin Asset Management Company.

282 Walter Updegrave, Ask TheExpert: Safety First: Fixed vs.

Variable Annuity,CNNMoney.com, December 3,2004

Mr. Updegrave distinguishes between a payout annuityand a deferred annuity. Only a payout annuity can make

sense in an IRA. A deferred annuity has an additional layerof fees you do not need to pay because the IRA alreadyshelters your earnings from taxes.

Unfortunately, there are many sales people out there whoare only too eager to take IRA money that sits and CDs and

mutual funds and roll it into annuities. I cant say whetherthey do that because they really believe its a good thing todo or because such a transfer results in a nice commissionfor them[.]

281 Mike Palmer, The HertzAdvisor and Not Exactly,ROCKY MOUNT TELEGRAM,

November 8, 2004

Mike Palmer, with the Trust Company of the South, writesthat hes seen enough broker-sold variable annuities insideIRAs to conclude that a stockbroker is no more qualified

to build your investment portfolio than your real estatebroker is to build your home.

If broker were held to a fiduciary standard of care,conflicts of interest would come to a screeching halt.


7 1/15/2014


9/17

280 Warren Boroson, Planner SeesSmart People Make Mistakes,DAILY RECORD (Parsippany,

NJ), October 13, 2004

Even smart, educated people make financial mistakes. Afee-only financial planner says one of his new clients was afemale professional who owned a tax-deferred variable

annuity inside a tax-deferred IRA.

Totally inappropriate, he calls it. It was a waste of thetax-deferred IRA. Or a waste of the tax-deferred annuity.And the added cost of the annuity was unnecessary.

279 Kathy Chu, Variable Annuities:

A Bad Wrap?, WALL STREETJOURNAL, October 4, 2004 at

R7

The article tells the story of James Walker, a Stone

Mountain, Ga. resident who trusted the recommendation ofan advisor at a bank to use a variable annuity for his

rollover IRA of a pension account he had at his employer,United Parcel Service.

Mr. Walker had to wait 7 years for the surrender fee on the

annuity to expire. `I felt I had been had, I felt I had beenused, said Mr. Walker, who has now transferred his money

into mutual funds in another IRA. I wish someone wouldhave explained this to me, because I didnt need thisinsurance.

While the majority of variable annuities are sold insideretirement plans, at least some variable annuity sellers wont

sell them to qualified plan investors. We dont even allowpeople to invest in our deferred variable annuity within aqualified plan, said Rob Nester, a principal at VanguardGroup in Valley Forge, Pa. We spend time every day

talking people out of it.

278 John Wasik, Annuities Can BeOf Value -- Or An Albatross,

PITTSBURGH POST-GAZETTE,September 26, 2004 at F5

The article observes that variable annuities have beenintentionally sold to customers to place inside IRAs, which

is an unnecessary move since such accounts already offertax-deferred compounding.

I had a client who was an ill woman in her 70s who wassold annuities for her IRAs, said Blaine Dunn, a fee-onlyfinancial planner in Wincester, Va. She didnt even know

she was being sold an annuity. It was done solely forcommission. It was legal, but not ethical.

277 Walter Updegrave, Ask TheExpert: Annuity Confusion,CNNMoney.com, September 3,2004

Deferred variable annuities do not make sense for moving401(k) money to a rollover IRAs, but an immediate annuitycan be a decent choice if you need lifetime income. Witha deferred variable annuity, youve gained nothing using

it in an IRA because the tax benefits are unnecessary. Thedeath benefit feature provides protection against a

low-probability event that the market is down over a longperiod of time, but that feature is not worth the high feesthat erode returns and result in a smaller nest egg forretirement.


7 1/15/2014


10/17

276 Michelle Singletary, On The

Variable Annuities Alert,

WASHINGTON POST, July 25,2004 at F01

The SEC and NASD have issued a joint report on variableannuity sales practices that has three words for investors

purchasing variable annuities: Watch your back.

[P]urchasing a variable annuity within a tax-advantagedaccount will provide no additional tax savings, accordingtoSusan Wyderko, the SECs director of the Office of

Investor Education and Assistance. It will, however,generate fees and commissions for the securitiessalesperson.

275 Matthew Lubanko, VariableAnnuities: Beware of Pitfalls,HARTFORD COURANT, July18, 2004 at D3

Many advisers also sell variable annuities inside IRAs orother tax-defered savings plans. `Ninety-nine percent of thetime, such sales amount to malpractice. An IRA or 401(k)is already tax-deferrred. A variable annuity just weighs

down your retirement savings plan with extra expenses,says Benjamin Tobias, a certified financial planner in

Plantation, Fla.Robert Nestor, principal of retiree services at VanguardGroup, notes that the break-even point (the year in which

savings from tax deferral begin to outweigh the expensesincurred from owning a variable annuity) is well beyond 20

years when a variable annuity is purchased outside of anIRA.

274 Elliot Blair Smith, AmSouths

Sales Tactics Draw Fire InMississippi, USA TODAY, July12, 2004 at 1B

The article describes the human tragedy of what went

wrong in Starkville, a town in Mississippi where JimMoorehead, a salesman for a brokerage subsidiary ofAmSouth Bancorporation, made a million dollars incommissions pushing variable annuities on unsuitable

purchasers. AmSouth has a history of regulatoryreprimands alleging lax supervision and compliance

procedures.

The article includes case histories of some of Mooreheadsunhappy customers, who have variable annuities funding

their rollover IRAs, and did not need the tax benefits orinsurance features of variable annuities.

273 Kathleen Lynn, Costs Are High,Access To Money Difficult WithVariable Annuities, DULUTHNEWS-TRIBUNE, June 12, 2004

[T]ax deferral is wasted when the annuity is purchasedinside an individual retirement account, as often happens.Thats because retirement accounts already offer taxbreaks.

Karl Graf, an accountant and financial planner in Wayne,

N.J. often sees annuities inside IRAs, which `makes me

cringe. He recently signed on a new client who had earlierplaced $200,000 in a high-priced annuity within an IRA.Most annuities allow the withdrawal of 10 percent a year


17 1/15/2014


11/17

without penalty, and Graf plans to use this option to `try tosuck the money out of the annuity.

272 Jeffrey R. Kosnett, Watch YourStep As Retirement Nears,

KIPLINGERS PERSONALFINANCE, June 2004 at 36

A profile of a retirement investor reveals that he has$313,000 in a variable annuity inside an IRA which is a

bad idea because the IRA already provides tax deferral, theannuitys main benefit. The investor should move hismoney out of the annuity into another investment to save

substantially on annual fees.

271 Tami Luhby, Before BuyingAnnuities, NEWSDAY, May 2,

2004 at E07

Investors should consider buying an annuity after theyhave made the maximum contributions possible to other

retirement options, such as 401(k)s and individualretirement accounts, said John Wesley, TIAA-CREFsproduct manager for nonpension annuties. Annuities alsoshould not be bought in accounts that already offer tax

deferral.

270 Walter Updegrave, Rolling BackOut Of An Annuity,

CNNMoney.com, April 23, 2004

A 30 year old reader rolled his 401(k) plan money into adeferred variable annuity funding a rollover IRA on the

recommendation of a financial adviser, and now the readerhas second thoughts. Mr. Updegrave writes back that the

main benefit of a variable annuity is tax deferral, and thereader does not need tax deferral, [s]o, essentially, myproblem with someone your age rolling a 401(k) or IRA orany other tax-advantaged account into a variable annuity

within a rollover IRA is that you end up apying more for thebenefit of tax deferral than you should. Mr. Updegrave is

in favor of using payout annuities to create a lifetimeincome benefit from a portion of qualified plan accounts,but you do not need to invest in a deferred annuity to havethis benefit. You can purchase a payout annuity when you

are ready for one.

269 Germaine Giani Weldon,

Security Dealers Issue InvestorAlerts, BILOXI SUN HERALD,March 21, 2004 at D3

A variable annuity is also not suitable for IRAs because

you would be putting one tax-deferred product intoanother. There are no additional advantages, just higherfees.

The author is a CPA with Alexander, Van Loon, Sloan,

Leven, and Favre, PLLC and AVL WealthCARE, LLC.

268 Annuities 101, CNNfn, March1, 2004 at 5:00pm

Gary Schatsky, a fee-only financial planner, remarks thatyou shouldnt even consider a variable annuity unless

youve maxed out on your 401(k), IRA and any otheravailable retirement plan. Michael DeGeorge, generalcounsel for the National Association for Variable Annuities,replies that variable annuities are appropriate for peoplewho have a long-term investment horizon, people who aresaving for retirement. I agree with Gary, people who have

maxed out first on their 401(k) or other qualified plans, and


17 1/15/2014


12/17

who are looking for additional tax-deferred growth.

Jonathan Krasney, president of Krasney Financial and a

CFP, states that one of the problems, frankly, that I havewith variable annuities is that they are frequently offered as

IRAs and qualified accounts. And to me, why wouldsomebody need to pay the expenses inherent in a variableannuity when they are making an IRA investment. . . [t]he

are superfluous if youre using them for an IRA or SEP orsome other kind of qualified retirement plan. . . [people do]not have to pay the roughly 1.5 percoent mortality expense

and administratiion charge thats inherent in [variableannuities.]

Next, several callers to the program complain that they were

missold an annuity in their qualified plan -- a tax shelterwithin a tax shelter[.]. Krasney advises the callers that

they try to negotiate a lower surrender fee to get out.

267 Sheldon Bell, MoneyManagement For Seniors,

DESERT SUN (Palm Springs,CA), February 26, 2004 at 2B

The potential tax benefits to you as a variable annuityinvestor usually take 20 years or more. . . Brokers love to

sell everyone variable annuities, as they receive a highcommissino and VA investments are not subject to `break

points -- reduced commissions based on invested dollars. . .[s]o beware if your broker suggests a variable annuity foryou, especially for your IRA account[.]

266 Jim Spreng, Annuities Arent

Always A Good Choice,BUCYRUS TELEGRAPH

FORUM (Bucyrus, OH),February 24, 2004 at 2D

Many annuities are sold to, and held inside, an IRA or a

403b. We definately do not agree with this philosophy. . .We see absolutely no good reason to buy a

high-commission, tax-deferred product to hold inside anaccount that is already growing tax-deferred. It isredundant to have two tax-deferred products together,especially one with such high fees. . . If you need additional

life insurance, term insurance is by far the mostcost-effective manner.

The author is a registered Investment Advisor with Sprengand Pigman Financial Advisory Group, Inc. in Bucyrus,Ohio.

265 Kenneth Hooker, The Adviser,BOSTON GLOBE, February 8,2004 at E4

A reader writes that her adviser suggests he move his IRAmutual funds into a no-load variable annuity that has adeath benefit feature.

Mr. Hooker explains that this element of insurance allows

the annuities to qualify as tax-deferred investments. It is forthat reason that many people buy them, figuring that thecost of the insurance required to establish these as annuitiesis a fair price for the benefits of tax deferral. However, you

already have achieved tax deferral by dint of having this


17 1/15/2014


13/17

money in IRA accounts. Mr. Hooker says if it were hisaccount, he would stick with the mutual funds.

264 Ann Perry, Couple Seeking AHappier Retirement, SAN

DIEGO UNION-TRIBUNE,February 8, 2004

Glenda Moehlenpah, a CFP with Financial Bridges, wasselected to review a retired married couples financial

situation (ages 69 and 61) as part of money makeoverprogram sponsored by the newspaper and the San Diegochapter of the Financial Planning Association. Moehlenpah

noticed that a previous financial adviser had invested thehusbands IRA in a variable annuity.

Annuities, which usually carry high commissions, are forinvestors who have maxed out all other tax-deferredoptions, which Ziggy had not. In cases where annuities aresold for IRAs, Moehlenpah said, the variable annuity

doesnt benefit the investor, `it benefits the person who soldit. The IRA is already tax-deferred. There is no reason to

put a tax-deferred investment product like an annuity insideof it. `It means your return is reduced by having this extra

layer of expenses, Moehlenpah said.

263 Pat Holland, Theyre Back --

Variable Annuities, LEDGERDISPATCH (Jackson, CA),

February 6, 2004

The author is a fee-only investment advisor in Jackson, CA.

One major concern is when a tax deferred retirement planlike a 401(k), IRA, etc. is placed within an annuity. Since

the retirement plan is already tax deferred, there is never,repeat, never a reason to put any [variable annuity in aretirement plan like an IRA] except for the commissionsthey generate for the salesperson.

262 Theo Francis, How VariableAnnuities Can Gnash Investors,WALL STREET JOURNAL,

February 6, 2004

Variable annuities mean big money for the companies andpeople that sell them -- and, all too often, big drawbacks forthe investors that buy them. [S]ome 60% of annuity sales

are made within IRAs and other accounts in which gainsalready receive the identical tax treatment. Thus, paying

the higher cost of a variable annuity for that benefit is awaste.

261 Rick Kahler, Is An IRA A GoodInvestment?, RickKahler.com,January 30, 2004

One thing you dont ever want to put in an IRA is avariable annuity. Like an IRA, an annuity is a tax-deferredbucket to put investments in. Since your IRA investment is

already tax-deferred, it makes no sense to put another

tax-deferred investment inside it -- especially since fees forannuities are high because youre paying for insuranceprotection.The author is a fee-based advisor with the Kahler Financial

Group in Rapid City, SD.

260 Warren Boroson, Free LunchAnd Some Valuable Lessons,PARSIPPANY DAILY

RECORD, January 27, 2004

The lure of a free meal attracts people to investmentseminars. The worst sales pitches are for deferred variableannuities, most of which bestow lavish commissions on

their money-grubbing salesmen. A seminar by Gregory L.


17 1/15/2014


14/17

Daniel, a CFP from Hacksensack, gave some useful,objective advice, such as: Dont put annuities into IRAs.(You waste the tax-deferral benefits of one of the two.).

259 Emily Hall, The Downside Of

Variable Annuities,Morningstar.com, January 21,2004

A reader writes to ask why there would be a variable

annuity funding his companys 401(k) plan.The Morningstar analyst responds that the readers and

others in similar situations should complain to their humanresources personnel about the decision to use atax-sheltered investment product in a tax-deferreed

account. The costs and surrender fees of annuitiesusually outweigh their benefits, and the tax benefits areunnecessary for 401(k) plan investors.

258 Ken and Daria Dolan, Dolans

Unscripted, Retirement Mistake:Not Using A 401(k) To Best

Advantage, CNNfn, December22, 2003

The guest is Matthew Tuttle, president of Retirement

Solutions, and the question from a viewer is whether abroker trying to sell an annuity for a 401(k) plan rollover is

acting in the viewers best interest. Ken Dolan calls thebroker an imbecile, Tuttle says the annuity investmentshould be measured by yield to salesperson, and DariaDolan says she likes to think of it as a P/E radio, a

payment extraction ratio.

The $2 trillion sitting in 401(k) plans is a treasure trove forunscrupulous brokers, says Ken Dolan. This promptsGreg to call in, who says he sells annuities and he objectsto Ken Dolan calling the brokers who sell annuities

imbeciles. When Greg points out that variable annuitiesinclude a death benefit feature, Daria Dolan responds that

most of us dont invest so we can drop dead and be madewhole. Ken Dolan concludes that when you sit on ourradio show for 15 years and find out how some people haveabsolutely wiped - literally wiped out by variable annuities,

you come to not like anything about variable annuities.

257 Timothy OConnor, VariableAnnuities - Not For You?,

BUSINESS REVIEW (Albany,NY), October 31, 2003

The single most important selling feature of a variableannuity is the fact that investments inside the variable

annuity grow on a tax-deferred basis to the investor.

The single largest area of investor victimization involvingvariable annuity sales-practice abuses is the sale of largevariable annuity contract policies into IRA and ERSIAqualified retirement accounts funded with large rollover

distributions of employer-sponsored retirement savingsplans. The victims are usually financially unsophisticated

and inexperienced employees retired from manufacturing,service and utility industry jobs.The author is a shareholder in the law firm Ainsworth

Sullivan Tracy Knauf Warner and Ruslander in Colonie, NY.


17 1/15/2014


15/17

256 Humberto Cruz, Planners

Annuity Advice Could Be

Costly, SUN-SENTINEL (Ft.Lauderdale, FL), October 27,

2003 at 22

A reader writes in that his retired parents recently changedfinancial planners. The new planner moved one of their

traditional IRAs into a variable annuity. Does the variableannuity make sense?

Cruz replies: Every time I get a letter such as yours --which is at least twice a month -- I want to scream because

it is likely that big commissions is the motivation for thesale of variable annuities for IRAs. So the bottom line is,unless the annuity features mean a lot to your parents, they

are paying an unnecessary expense for a tax deferral theyalready had in their IRA.Cruz suggests considering a variable annuity only if you

have funded other tax-deferred plans to the maximum.

255 David J. Drucker, Do Annuities

Qualify For Your Clients?,FINANCIAL ADVISOR, October2003

The use of annuities in IRAs and other qualified accounts

often finds favor with the ones selling annuities, althoughplanners of all compensation stripes will take the other sideof the debate.

Carol Wilson, of Wilson Financial Advisors Inc. in Salt LakeCity, Utah feels that a tax-deferred vehicle has no place in

an IRA or qualified plan that is, in itself, tax advantaged.Warren McIntyre, of VisionQuest Financial Planning, inTroy, Michigan, says Annuities are sold because the

`advisor makes the most money on this product. Is theseller really going to avoid the huge IRA market just

because its the right thing to do? Of course not, he says.Dan Roe, of Budros & Ruhlin Inc., in Columbus, Ohio, saysthat variable annuities can make sense in IRAs in the

distribution phase i.e.as payout annuities.

Scott Leonard, of Leonard Wealth Management, in ElSegundo, California, says [t]here is zerio justification forputting a tax-deferred annuity inside an IRA. However,when it comes to annuitizing, the argument flips and a very

strong case can be made that the product [a payout annuityrather than a deferred annuity] belongs inside an IRA[.]

254 Karen M. Kroll, Variable

Annuities: Down But Not Out,bankrate.com, September 23,

2003

[T]hanks to new federal tax cuts, investors are wondering

if they should keep the insurance products in theirportfolios because variable annuities convert what would

be capital gains and dividends, taxed at lower rates, intoordinary income taxed at the highest rates.One important note: `You never want to use annuities in a

qualified retirement plan, such as a 401(k) plan, says


17 1/15/2014


16/17

[Lewis] Mandell [professor of finance and managerialeconomics with the University at Buffalo in Buffalo, NewYork]. That's because 401(k)'s and other qualified plans

already allow you to accumulate money on a tax-deferredbasis. There's no sense in paying the higher costs of an

annuity when you can simply invest in a mutual fund andreap the benefits of deferring taxes less expensively.

This article was also syndicated in print newspapers.

253 Advice on Planning For Your

Future, CNNfn, August 19, 2003at 5:00pm

The guest is Ray Loewe with the GE Financial Center for

Financial Learning. A caller says his financial planner isrecommending a variable annuity for his $500,000 IRA.Mr. Loewe responds that a variable annuity sounds strangehere because this is an IRA account and youre already

getting the benefits of tax deferral.

Youd be paying a fee to an insurance company to giveyou tax deferral you dont need.

252 Retirement Planning Advice,

CNNfn, August 5, 2003 at

5:00pm

The guest is Rick Applegate of First CommonwealthFinancial in Pittsburgh. Kim, in Kentucky, writes to the

show that he wonders about the merits of investing $75,000in a variable annuity recommended by a salesman who got

more out of this annuity than me because the salesmangot a 7% commission. Mr. Applegate says that annuities aresold to people, as opposed to used as a financial instrumentthat makes appropriate sense. If the variable annuity is

inside of an IRA, you got suspenders and a belt. Whyhave a deferred annuity with an IRA wrap? It doesnt make

any sense.

251 Patti S. Spencer, Buying AnAnnuity In Your IRA: Its Still A

Bad Idea, INTELLIGENCERJOURNAL (Lancaster, PA),August 4, 2003 at 5

On a list of stupid things people do to mess up their IRAs,number 8 is buying an annuity for an IRA. The IRA is

already tax deferred, you dont need to buy a product fortax deferral - the IRA already gives you tax deferral.Variable annuities have more moving parts than a 747 andthe insurance features are costly relative to their slim

benefits. Accordingly, [i]f you already have tax deferral inan IRA vehicle, there is no way the numbers will put you

ahead over the long term when compared to anotherinvestment in the IRA.

A NASD investor alert published May 27, 2003 -- titled

Variable Annuities: Beyond the Hard Sell -- reaches thesame conclusion. It states that [s]ince IRAs are already

tax-advantaged, a variable annuity will provide noadditional tax savings. It will, however, increase theexpense of the IRA, while generating fees and commissionsfor the broker or salesperson.


17 1/15/2014


17/17

Table 1 (independent views) Part 1 Part 2 Part 3 Part 4 Part 5 Part 6

Table 2 (annuity industry views) - Part 1 Part 2

updated: January 12, 2007email: inquiries at insurancelaw dot com

All Rights Reserved.Permission is not necessary to link to this page.Ronald A. UitzUitz & Associates1717 K St Nw Ste 600Washington, DC 20036202-296-5280


Documents

Bibliography - Using a Deferred Annuity to Fund a Qualified Retirement Plan 1