Personal Finance Q & A

By , Staff writer of The Christian Science Monitor

No Easy Options for Annuity Rollover

Q I have an underperforming annuity at a national insurance company. I want to close out the account come mid-1998 when I won't incur surrender charges. Could I move the account into another tax-deferred account, say, an IRA, or a Massachusetts tax-exempt mutual fund?

- M.S., Melrose, Mass.

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A You cannot do either without paying taxes up front, says Leonard Ringenbach, a certified financial planner at Financial Network Investment in Cleveland. To avoid any tax on your gains, you must move your assets to another annuity, using what is called a "1030 exchange." A "variable annuity" would allow you to invest in a few mutual funds.

But to transfer into a traditional mutual fund, you must liquidate your holdings, pay taxes on deferred gains, and then put the proceeds into the fund. And the most a person can put into an IRA is $2,000 a year.

The recent cut in capital-gains taxes could make an annuity less advantageous. You may want to consult a financial adviser.

Q If I sell my house, and have $100,000 to invest, would you suggest putting this into a family of funds, like the Vanguard Group? If so, how would you distribute it? If it is not wise to put everything into Vanguard, how should I invest the funds?

- A.P., New Hyde Park, NY

A The answer depends on your investment time frame, says Michael Huffman, a financial consultant at Fraser Management Associates in Burlington, Vt. If you plan to use the money in a year or so, such as to buy another house, the money should go mainly into fixed-income products, such as bonds, he says.

If your time horizon is long - say you are investing for a child's college education or your retirement - put a larger amount into stocks, Mr. Huffman says. Vanguard products would be an excellent-choice, he says, given their low expenses.

Q I am 72 and my husband is 69. We now purchase certificates of deposit from the local bank, but I would like to diversify and try some stocks. Any information that might help?

- V.W., New Hartford, Conn.

A Thomas O'Hara, chairman of the National Association of Investors Corp. (NAIC) in Madison Heights, Mich., says people should invest a portion of their assets in stocks well into retirement, given their superior record versus other investments.

There are many ways to buy stocks. One can invest in specific securities, through a broker; or one can invest in mutual funds. Mutual funds pose less risk, since a fund buys a diversified portfolio of companies.

To learn more about investing, call the NAIC, at 248-583-6242, or the American Association of Individual Investors at 312-280-0170. You could also ask for information on investing from mutual fund companies. One caution: The market is considered to be fairly high now, so some planners say newcomers should buy into it slowly, through small amounts invested on a regular basis.

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