Rolling over annuities to traditional IRAs
Q My husband and I are both turning 50 and have participated in university retirement plans as well as insurance retirement annuities. Recently, we were advised to roll over the annuities to individual retirement accounts (IRAs) because of the riskier ways required to take payments in annuity plans: not getting as much of it, for example, if you take smaller payments so a spouse can receive some after your death. Both of our retirement plans noted above are invested in strong families of mutual funds. Do you have advice on a preferred option - annuity versus [traditional] IRA?Skip to next paragraph
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B.K., via e-mail
A You need to raise several questions with your local retirement/annuity plan providers, says Tim Shmidl, of Prism Financial Group, Overland Park, Kan.
If you have an annuity in a retirement plan, you are not required to actually "annuitize" it, that is, take out monthly payments, Mr. Shmidl says. You can instead elect to take out occasional amounts as you wish. So ask your provider if that is possible.
Also, if you have had money in a 403(b) plan (or something similar) at your university since the early 1980s, you may qualify for a more flexible distribution method than would be the case with an IRA, where you have to start withdrawing monies at age 70-1/2.
You may be able to wait until past age 70 with your university plan, Shmidl says.
Still, the advantage of shifting to an IRA, says Shmidl, is that you can eliminate the insurance fees on your annuity, and thus help boost returns.
If you do shift to an IRA, he says, consider shifting it to the mutual-fund group handling your annuity.
Q Are annuities insured by a federal agency, as are bank accounts?
A No. They are backed by the issuer, often an insurance company. That is why most financial planners suggest that when buying an annuity, you always check out the financial rating of the backer.
Ratings are issued by A.M. Best, Moody's Investor Service, or Standard & Poor's.
Q What is the difference between growth investing and value investing?
M.L., New York
A According to the Investment Company Institute, the main trade group for the mutual fund industry, growth investing means that you invest in young, fast-growing companies that have above-average earnings gains. Such companies often do not pay dividends.
Value investing essentially means investing in companies with low-stock prices, based on such tests as having low-price-to-earnings ratios. Value firms often pay dividends.
Q A financial firm with which I deal has recommended a certain policy regarding estate planning. The policy is based on a "PLR," a private-letter ruling issued by the IRS in another estate case. How authoritative are private-letter rulings from the IRS?
Name withheld, New York
A A private-letter ruling is not authoritative for any person other than the taxpayer who requested the ruling, says Ed Slott, a CPA and expert on IRAs based in Rockville Center, N.Y. Still, the PLR might indicate a shift in thinking by the IRS regarding a specific tax issue.
Q I was recently stunned to find out that my favorite mutual fund was actually owned by a transportation company in a city far removed from where the mutual-fund company was located. How can we find out who are the actual owners of our mutual funds?
S.S., Jersey City, N.J.
A You are referring to the Janus Group, which is now being spun off from its parent company, Kansas City Southern Industries. Details about ownership can always be found in the fund's prospectus.
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