how many retirement accounts is too many???

[hegemony]

spouse:

401k (max)

roth IRA (orphaned, cannot contribute to)

traditional IRA (max)

 

me:

401a (max)

403b (max)

457 (max)

roth IRA (orphaned, cannot contribute to)

traditional IRA (max)

 

maybe it is just me, but sometimes it is hard to keep track and seems to take too much time to properly manage them all. we could roll our roths into one of the other accounts but the Roth's advantages would be lost. the roths are not very big however so I am tempted to forego the advantages just for sake of simplicity.

 

the next type of account that seems to make sense is a tax deferred annuity. but I've always considered annuities a rip-off. however, when I look at the tax savings, as per

 

http://personal.fidelity.com/products/annu....cvsr?refpr=an1

 

it seems to make sense as it would result in more savings than, for example, a mutual fund or high APY savings account, due to the tax friendly nature of the annuity.

 

so if anyone has thoughts on:

 

1) should we abandon our small roths to simplify

 

2) are tax deferred annuities sometime a good route

 

3) do I obsess to much on making sure I am not eating cat food when I am 70?

[Peekaboo]

Well, as you know from me always asking for YOUR advice on retirement accounts I don't have a friggin clue what the answer to the first 2 questions. However, I sincerely doubt that you will be eating cat food at any time...well, except for maybe the salmon fed to cats of the very wealthy maybe

[angeleyeskkhr]

spouse:

401k (max)

roth IRA (orphaned, cannot contribute to)

traditional IRA (max)

 

me:

401a (max)

403b (max)

457 (max)

roth IRA (orphaned, cannot contribute to)

traditional IRA (max)

 

maybe it is just me, but sometimes it is hard to keep track and seems to take too much time to properly manage them all. we could roll our roths into one of the other accounts but the Roth's advantages would be lost. the roths are not very big however so I am tempted to forego the advantages just for sake of simplicity.

 

the next type of account that seems to make sense is a tax deferred annuity. but I've always considered annuities a rip-off. however, when I look at the tax savings, as per

 

http://personal.fidelity.com/products/annu....cvsr?refpr=an1

 

it seems to make sense as it would result in more savings than, for example, a mutual fund or high APY savings account, due to the tax friendly nature of the annuity.

 

so if anyone has thoughts on:

 

1) should we abandon our small roths to simplify

 

2) are tax deferred annuities sometime a good route

 

3) do I obsess to much on making sure I am not eating cat food when I am 70?

 

What is an "orphaned" account? And if you can't contribute to it anyway, what do you mean by abandon it?

[hegemony]

What is an "orphaned" account? And if you can't contribute to it anyway, what do you mean by abandon it?

we have not been able to contribute to ROTH IRAs for several years. so these accounts are small and "orphaned"

 

we can roll them into another account, e.g., my 403b will accept funds from a post-tax account such as a ROTH. but then we lose the tax advantages of Roths, but since there is not a lot of money involved it may be worth the small monetary cost to simplify our lives a bit.

[angeleyeskkhr]

 

What is an "orphaned" account? And if you can't contribute to it anyway, what do you mean by abandon it?

we have not been able to contribute to ROTH IRAs for several years. so these accounts are small and "orphaned"

 

we can roll them into another account, e.g., my 403b will accept funds from a post-tax account such as a ROTH. but then we lose the tax advantages of Roths, but since there is not a lot of money involved it may be worth the small monetary cost to simplify our lives a bit.

 

 

Does the 'tax advantage' really make any significant difference when you file? If not, I'd probably just combine it for the compounding issue (by itself it won't make much of a difference, but if you put it with another account that is getting more and more 'principal' it'll have more earning power so's to say).

 

But I'm not nearly as competent as you are at this stuff, so I'd take my opinion with a grain of salt.

[hegemony]

Does the 'tax advantage' really make any significant difference when you file? If not, I'd probably just combine it for the compounding issue (by itself it won't make much of a difference, but if you put it with another account that is getting more and more 'principal' it'll have more earning power so's to say).

 

But I'm not nearly as competent as you are at this stuff, so I'd take my opinion with a grain of salt.

the Roth tax advantage does not affect current federal taxes. the money in it grows tax free. that is the advantage.

[54regcab]

The Roth choice is up to you. Do firgure out what it will cost you long term before deciding. I would go with tax efficient mutual funds and pay off your mortgage before investing in an annuity. The fees for Annuities are just to high to offset thier tax advantage. Don't let the "tax tail" wag the "return dog"

[hegemony]

The Roth choice is up to you. Do firgure out what it will cost you long term before deciding. I would go with tax efficient mutual funds and pay off your mortgage before investing in an annuity. The fees for Annuities are just to high to offset thier tax advantage. Don't let the "tax tail" wag the "return dog"

well the fidelity tax deferred annuity does not have a lot of fees. and our mortgage is at only 5.25% APR. but you're right about the return dog.

[Tools McTool]

I'm just reading about starting my first IRA so... yeah.

I do know this: I tend to spend a little extra for things that make my life easier.

 

MHO.

Tools

[Athena53]

It looks like your spouse has 3 different "animals" and they can't be combined. I'm not as familiar with the ones you list (other than the Roth and the traditional IRA). If you can't combine any of yours without losing some tax advantage, I'd keep them separate. If you change jobs at some point, you should be able to roll over your previous employer's savings into a brokerage acccount and maybe roll over one or more into the same account. Of course then you'd have one with the new employer!

 

I'm not crazy about annuities. My brother, a CPA who's a genius on taxation, bought one because he liked the tax advantage. My Dad tried to talk him out of it (Dad was a broker for a few years before he retired). Now my brother is unhappy at the returns. Oh, well.

 

And, as far as I'm concerned, it's impossible to be too obsessed with saving for retirement unless you're living on dog food now. DH is retired and gets about $20K/year from SS. But there's no dental care and he got new hearing aids last year- $5,000 for the pair. (Think you won't need them? How loud is your iPod? Do you go to rock concerts? You'll need them.) He'd live without hearing aids or his dental implant (instead of a partial denture) or the health club membership- but he lives better because of all of them. That's the kind of retirement I want.

[hegemony]

I'm not crazy about annuities. My brother, a CPA who's a genius on taxation, bought one because he liked the tax advantage. My Dad tried to talk him out of it (Dad was a broker for a few years before he retired). Now my brother is unhappy at the returns. Oh, well.

I know what you mean. it just seems there is not another tax advantaged vehicle. when I run the simulator at fidelity.com it shows about a 65,000 tax savings over the next 20 years.

Edited February 4, 2007 by hegemony

[Baddies4Breakfast]

Didn't Bush/Congress pass something recently that will remove the income cap for Roth IRAs by 2009/2010/2011 or something? Might wanna hold onto your Roth.

[Athena53]

I know what you mean. it just seems there is not another tax advantaged vehicle. when I run the simulator at fidelity.com it shows about a 65,000 tax savings over the next 20 years.

 

My understanding, though, is that there are caps on the return you get. IE, in a year when you would have made 25% if you'd been in stocks, you might get 10%. Yes, the other side of the coin is that you get a much better return in the years the market goes down, but overall the insurance company providing the annuity has to make a buck, too, right? So does the person (or brokerage) who sold it to you.

 

We're at the point where we're getting killed on taxes on our after-tax investments (i.e., those outside of IRAs, 401(ks)). I almost cringe when I get the year-end tax statements from our mutual funds because of the magnitude of the dividends and capital gains distributions. I say "almost" because it's a great problem to have. I deal with it by buying funds that don't have frequent turnover, so that the vast majority of the gains are long-term. (Remember that all investment income coming out of an annuity is taxed as ordinary income- a big disadvantage, IMHO.) Someday we're actually going to have to take money out of the investments to pay the taxes on the income; right now we're managing to pay the taxes out of my income. But I'd rather do that than mess with annuities.

[54regcab]

Athena53 you make an excellent point about ordinary income rates on the annuity withdraws considering they are funded with after tax dollars to begin with. It seems to me paying cap gains @ 15% is much cheaper than paying ordinary income rates @ 25% or higher.

[hegemony]

Didn't Bush/Congress pass something recently that will remove the income cap for Roth IRAs by 2009/2010/2011 or something? Might wanna hold onto your Roth.

the change is a one time option to roll a traditional IRA into a ROTH (in 2010-2012), as long as you pay a 10% penalty. it really is not that much of a deal and we don't need to keep the current ROTHs to get it.

[hegemony]

Athena53 you make an excellent point about ordinary income rates on the annuity withdraws considering they are funded with after tax dollars to begin with. It seems to me paying cap gains @ 15% is much cheaper than paying ordinary income rates @ 25% or higher.

but there is a good chance the 15% CGs rate will not be around for long...

[EasyRhino]

spouse:

401k (max)

roth IRA (orphaned, cannot contribute to)

traditional IRA (max)

 

me:

401a (max)

403b (max)

457 (max)

roth IRA (orphaned, cannot contribute to)

traditional IRA (max)

 

Hedge, I think your spouse stuck with the three accounts. If you ever leave your employer, you can probably roll that 401k over to your traditional IRA.

 

As for you, I didn't even know what a 401a and 457 are. Are they still active? If they aren't, the rollovers would seem to be an option too. Ditto with the 403b. However, if they're all still accepting contributions, then there's nothing wrong with keeping them going.

 

I don't know much about annuities. Here's what I do know:

1) Annuities sold by life insurance are generally scams

2) Taxes have to be really kicking your butt before you'd usually consider one. I'm guessing 33% or 35% bracket.

[hegemony]

spouse:

401k (max)

roth IRA (orphaned, cannot contribute to)

traditional IRA (max)

 

me:

401a (max)

403b (max)

457 (max)

roth IRA (orphaned, cannot contribute to)

traditional IRA (max)

 

Hedge, I think your spouse stuck with the three accounts. If you ever leave your employer, you can probably roll that 401k over to your traditional IRA.

 

As for you, I didn't even know what a 401a and 457 are. Are they still active? If they aren't, the rollovers would seem to be an option too. Ditto with the 403b. However, if they're all still accepting contributions, then there's nothing wrong with keeping them going.

 

I don't know much about annuities. Here's what I do know:

1) Annuities sold by life insurance are generally scams

2) Taxes have to be really kicking your butt before you'd usually consider one. I'm guessing 33% or 35% bracket.

the 401a, 403b, and 457 are my three pretax retirement account. they are all active and I can max 45K in 2007 (including employer match). the 403b and 457 are "deferred compensation" vehicles that do not have employer matches. my employer does not pay into social security.

 

for the annuities...we may pass for now as we've decided to invest in a new home rather than an annuity. but we may start one with fidelity once we're in the new place and assess our tax situation.

 

thanks for the thoughts and keep 'em coming!

[hegemony]

I am bumping this old thread to see if anyone can give me some additional guidence on tax deferred annuities.

[Kevin20]

I am bumping this old thread to see if anyone can give me some additional guidence on tax deferred annuities.

 

I think there is nothing wrong with an annuity per se, and people who dismiss the genre as a ripoff are unfair -- it's just that a lot of them have too much cost built in, and yes financial advisors will sometimes have their judgment biased by the fact that they are well- compensated selling VAs, hence the reputation. Their complexity and lack of transparency in marketing them undermines the consumer benefit of competition.

 

I do know from some years back that USAA has very lean variable annuities -- practically cost-free, and with a good range of fund choices for the internal accounts. I've seen details on a lot of other annuities, and none I've seen compare ... if you happen to have access to USAA membership.

 

You may already know the details of how variable annuities work ... your 403b at least is probably a variable annuity, even if that's not obvious. Compared with just a regular unqualified brokerage or mutual fund account:

 

Variable annuity advantages:

- Can change allocations and shift money among funds over the years with no interim tax consequence

 

- Includes a death benefit that has value in a declining market: at your death, proceeds from the account are the account value, OR AT LEAST what you contributed to it, whichever is higher. Good if a market crash gives you a heart attack.

 

- You get instant diversification: as with a 401k, your first dollar contributed is allocated among however many funds you've selected for your allocation.

 

- Can be easily converted to an immediate annuity (converted into pure income), without the same tax consequences of first selling some other investment first to raise the cash.

 

- Might be protected from creditors and lawsuits. Depends on state law.

 

Disadvantages

- More costly. Each mutual fund has typical fund charges, also the account has an overhead to cover the death benefit component and possibly compensation for an agent to sell these. Have to be very careful to scrutinize all the costs. (Probably a good rule of thumb is that the good deals, you have to go out and uncover yourself and get it online. The bad deals are aggressively marketed to you.)

 

- In future upon distribution, investment gains taxed as regular income. Probably inferior to a buy-and-hold brokerage investment that will lead to capital gains taxation. Though no guarantee cap gains will always be tax advantaged.

 

- Fewer choices of funds than a brokerage account or big fund family.

Edited July 13, 2008 by Kevin20

[Kevin20]

I should add this point:

 

Variable annuity advantages:

- Can change allocations and shift money among funds over the years with no interim tax consequence. Also, no interim taxation on interest/dividend/cap gain income within the funds.

Edited July 13, 2008 by Kevin20

[Kevin20]

Having read through this thread, a couple points, though I realize I'm countering comments from a year ago:

 

- There is not much reason to expect returns in a variable annuity to be either better or worse than with regular mutual funds, because that's all a variable annuity is -- a collection of mutual funds wrapped up in a wrapper that has certain tax characteristics.

 

- The exception is, that wrapper comes with an overhead cost, which does drag your return a little bit. If it's 0.25% a year, no problem. But many VA's will be more costly than this. That's what you have to watch out for.

 

- A typical VA looks much like a 401k, in that you're given a menu of funds to choose from, maybe 20 or 30 or 40. These funds are generally clones of well-known existing mutual funds. For example, there is a Fidelity S&P 500 mutual fund. Well there may be a variant of the Fidelity Spartan 500 Fund that is used in variable annuities and that is available in a certain annuity. It is legally not the same entity as the regular Fidelity fund (for some obscure reason), but it is essentially the same thing, run by Fidelity's same fund managers, and gives the same return.

 

- I'm not aware of any VA that either limits your upside or reduces your downside, as far as investment returns go. Maybe that's a feature of some certain ones, I don't know. The sort-of exception is if you die, a VA has a death-benefit, ensuring that your beneficiaries receive AT LEAST as much money as was contributed, if the investments did badly. This is why VAs are products of insurance companies, and this accounts for the overhead cost.

 

- I would say a variable annuity is certainly not just for rich people. But you probably don't need one unless you are already maxing out your company retirement plans and Roth IRAs or deductible traditional IRAs.

 

- I would judge a good variable annuity probably to be preferable to a non-deductible traditional IRA contribution (ie, you have a company plan available and your income is too high), or a contribution to a 401k that exceeds the amount that is pre-tax (like what some careless moneybags do). Tax treatment is the same, but the VA gives you the death benefit.

 

- New improved VAs come out all the time. Someone may have gotten a crappy VA years ago, but that does not mean there are not good ones available now. And, you can rollover money from the old one to a new one, and often get some kind of bonus for that. But ... who ultimately pays for that bonus? Probably you, so the low-cost VAs you want probably aren't the ones giving you a bonus.

 

- DON'T do a VA within an IRA. There's no tax benefit; you're accomplishing nothing but layering on additional costs when you do that.

Edited July 14, 2008 by Kevin20

[hegemony]

Hi Kenvin20,

 

Thanks for the thoughtful comments. You've given me a lot to consider.

[gjb]

Is this forum still alive?

[Cactus Flower]

spouse:

401k (max)

roth IRA (orphaned, cannot contribute to)

traditional IRA (max)

 

me:

401a (max)

403b (max)

457 (max)

roth IRA (orphaned, cannot contribute to)

traditional IRA (max)

 

maybe it is just me, but sometimes it is hard to keep track and seems to take too much time to properly manage them all. we could roll our roths into one of the other accounts but the Roth's advantages would be lost. the roths are not very big however so I am tempted to forego the advantages just for sake of simplicity.

 

the next type of account that seems to make sense is a tax deferred annuity. but I've always considered annuities a rip-off. however, when I look at the tax savings, as per

 

http://personal.fidelity.com/products/annu....cvsr?refpr=an1

 

it seems to make sense as it would result in more savings than, for example, a mutual fund or high APY savings account, due to the tax friendly nature of the annuity.

 

so if anyone has thoughts on:

 

1) should we abandon our small roths to simplify

 

2) are tax deferred annuities sometime a good route

 

3) do I obsess to much on making sure I am not eating cat food when I am 70?

I like reviving some of these old threads.. see where people are at today. Heg, guess you are doing great. I only have one 401k through work. I had a Roth IRA, but stopped putting money into it last year because I decided to live a little and go to Hawaii instead. Yeah maybe I'll live to be 80 or 90 or maybe I'll die next week................ I am just hoping that the 401k continues to do well and with that and SS and the paltry pension................ I will do OK. House will be paid off before I retire. Fingers crossed.

Edited September 11, 2013 by Cactus Flower