To borrow, or not to borrow, from an annuity

Q I'm 50 and have a $60,000 home-equity loan at 8 percent interest, which I used for college expenses. I also have a $250,000 TSA (tax-sheltered annuity), earning, on average, 8 percent annually. My TSA allows me to borrow from it and charges a 3 percent annual administrative fee on the outstanding balance. When does it make sense financially to borrow from my TSA to pay off the home-equity loan? My plan is to repay the TSA with what I have been paying regularly on the equity loan.

J.K., via e-mail

A "If your monthly cash flow is a problem, keep the home-equity loan. If cash flow is not a problem, go with the TSA," says David Bendix, president of Bendix Financial Group, Garden City, N.Y.

Here's why: With a home-equity loan, you can stretch your payments over as many as 30 years. By contrast, says Mr. Bendix, most TSA plans require a much shorter payback period, such as five years, so your monthly payments would be larger.

He adds that, depending on your tax bracket, up to one-third of the costs associated with a home-equity loan are tax deductible. So your actual loan rate is somewhere around 5 percent, not 8 percent, Bendix says.

Yet that rate is still higher than the TSA's 3 percent payback rate. So assuming cash flow is not a challenge, you will come out ahead by borrowing from the TSA, Bendix reckons. And since you are 50, you should have a good decade or so to rebuild the TSA before you retire.

Q My husband has about $3,200 in a profit-sharing plan with a previous employer which he needs to roll over into an IRA. The only two companies that I know of to handle this are Fidelity and Vanguard. We sent an application to Fidelity, but they threw it out and we needed to complete the paperwork again. I phoned Vanguard, but have received no application. Who else can I contact to roll over this money?

M.C., Lubbock, Texas

A A Fidelity spokesman says that if an application is incomplete or improperly filled out, the company will pinpoint the problem and help the customer fill out a proper form. Fidelity can be reached at 800-544-5650. They also have seven branch offices in Texas, including Dallas.

If you still have trouble, Bendix says contact another major fund company, such as T. Rowe Price (800-638-5660) or Invesco (800-752-6342).

Questions about finances?

Write:

Guy Halverson

The Christian Science Monitor

500 Fifth Ave., Suite 1845

New York, NY 10110

E-mail: halversong@csps.com

(c) Copyright 2000. The Christian Science Publishing Society

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK