Best Option For A 401 K Rollover

Is an index annuity good for a 401 K rollover? Absolutely, it is one of your best options. It is very easy to do a direct transfer from the 401k  custodian.  It takes about 10-15 days and there are no income tax ramifications. Most 401k programs invest in mutual funds. Most of these funds are invested in the stock market and that means these funds are at risk for declines in the market. Recently, the markets have improved but in 5 years before that, 401k investors lost almost 50% of their assets.  To recover from a 50% loss, the market must go up 100% just to get back even.

401k programs are very popular but most investors are not aware of the charges in their 401 k. There are management fees and commission charges for buying and selling the stocks. This can ad up to 2% a year but these charges are not visible in your 401 k statements. Index annuities have no yearly charges and there are no losses when the market declines.  The only fees are surrender charges for removing funds before the surrender period is over. Most surrender periods are 5-7 years and most annuities allow 10% annual withdrawals  without any penalty. However, like a 401k, if funds are removed before age 59 1/2, a 10% penalty is imposed by the Internal Revenue Service. There are hardship exceptions to this rule and sometimes the money can be removed without incurring the IRS penalty.

Some annuities have an index where an investor can actually make money if the market declines.  Each year on the contract anniversary, the owner has the option to reallocate the annuity funds between different indexes such as the S&P 500, Dow Jones, Nasdaq 100 and the Russell.  Reallocation can be done up to 30 days after the contract anniversary.

Another advantage of rolling a 401 k to an index annuity is the lifetime income benefit. This is a new rider that has been added to annuities and it can make a huge difference in the amount of money available for retirement income.  This benefit can be activated without annuitizing the contract so it offers additional flexibility in retirement planning.  Most annuities guarantee a  5% growth rate on the income account.  When an annuity is issued, an income account value is set up to serve as the basis for determining the amount of income available to make lifetime income withdrawals. The income account value is not available to be taken as a lump sum but only to  determine the amount that can be taken as lifetime income payments.  The accumulation period usually lasts anywhere from five to seven years and can be renewed if the retiree is not ready to begin payments. The longer the accumulation period, the larger the lifetime payments will be.

Annuities also offer a medical benefit. If the annuitant is confined to a nursing home, hospital, or hospice facility the payout benefit is usually doubled. Also, some companies offer health solutions from the Mayo Clinic to help the annuitant live longer and feel better. Some annuities now offer long term care benefits for an additional annual charge.

So to summarize, an index annuity is an excellent option for a 401 k rollover. By generating stock market like returns with no risk, an annuity program can still generate a good return with no risk and the fees are much lower.

Allianz Annuities

Allianz annuities are underwritten by Allianz Life Insurance Company of North America based in Minneapolis, Minnesota. The company offers life insurance, variable and fixed annuities, and has more than 100,000 agents in the United States. The company is a subsidiary of Allianz SE, the 20th largest world based corporation with over 155,000 employees worldwide.

Allianz is the largest issuer of index annuity policies.

Many insurance companies that sell index annuities have been defending themselves against class action lawsuits because the original policies that were sold were complex and not explained properly by the agents. To help combat this problem, Allianz annuities are now subject to extensive reviews and suitability standards before they are issued.

• All annuity applications Allianz receives go through a suitability rules check, and they have a more detailed review process for applications that require further analysis. Allianz will not approve applications that do not pass their suitability testing.
• Customers also receive a third-party survey that quantifies their hapiness with the sales process and explanation of the product.
• All owners of Allianz annuities over age 75 are called to review the features of the program they invested in and to verify their awareness of the contract’s terms and responsibilities. If Allianz determines a customer did not fully understand the purchase or that it was unsuitable for their needs, Allianz will offer a full return of premium.

Allianz is the largest issuer of equity index annuities. In the most recent quarter ending in June 2011, the company had premium of $5.6 billion through the first half of 2011. The company has also added new life insurance products in the recent quarter. The company has maintained strong ratings through the current financial crisis. There ratings are:

A.M. Best A (Excellent)
Standard & Poor’s AA (Very Strong)
Moody’s A2 (Good)

So if you are looking for Allianz annuities, the company has a wide variety of offerings and strong financial stability.

Equity Indexed Annuity-Best Investment Around?

Equity Indexed annuity- best investment around?

Is the equity indexed annuity the best investment in today’s economic environment? Let’s analyze the most important investment attributes.

Yield: Most equity indexed annuities pay a bonus of 6-10% on the initial amount invested. After that, the returns are tied to the performance of an index like the S&P 500 or the Dow Jones Industrial Average. In years where the indexes perform well, the annuity can perform very well. In years where the averages go down, the annuity will return zero instead of losing money like stock mutual funds. Also, the annuity has a fixed interest rate component which usually pays 3-4% which is substantially higher than CDs and money market funds.

Safety: The equity indexed annuity is guaranteed by the full faith and claims paying ability of the issuing life insurance company. It is important to select a company with a high rating and in many cases these companies will be backed by billions of dollars of assets and reserves from a company that may be over 100 years old. Life insurance companies are analyzed by four rating agencies and each agency assigns a letter rating to the company. The review includes a review of the company’s balance sheet, operating performance and business profile. It is important to choose a company with A, A+ or A++ rating as these are the safest companies. Each state has an insurance commissioner that regulates insurance companies and monitors their financial performance. When an investment is made in an equity indexed annuity, the life insurance company is required by law to set aside a minimum of $1.04 for every $1 of principal that is invested. Many companies have a $1.50 to $1 ratio of reserves to deposits. By contrast a bank is only required to have between 5-15% of a deposit in reserve. Insurance companies control more assets than the banks and oil companies in the world combined. They have very conservative investment strategies which help keep them safe and liquid.

Taxes: Taxes on an equity indexed annuity are not paid until a withdrawal is made. This allows the premium and interest to grow tax deferred. This gives you triple compounding because you earn interest on the principal, interest on your interest, and interest on the money that would normally be paid in taxes. Also, the owner controls when the taxes will be paid by advantageous timing of their withdrawals. Another important tax factor is the exclusion ratio. When an annuity is annuitized, part of the monthly payment is considered a return of principal and is not taxable.

This keeps a substantial portion of your monthly payment off your tax return because only a portion of your payment is taxable interest. This lowers your overall income in computing taxes on social security benefits.

Liquidity: Equity indexed annuities are intended to be long term investments. They usually have decreasing surrender charges of 10% or more that may run as long as 10 to 14 years. However, most programs allow a 10% withdrawal on an annual basis with no penalties. These surrender charges have a positive effect on insurance company safety because it is unlikely there would a run on the company because of the charges that would be incurred to withdraw the money.

Fees: When money is invested in an equity indexed annuity, the whole amount is immediately credited and there are no sales charges deducted as in other types of investments. There are usually no annual administrative fees and if the policy is held to the end of the surrender period, there are no charges to withdraw the money. Charges are made only if more than 10% is withdrawn in a year or the policy is surrendered before the surrender period is over.

In summary, the equity indexed annuity is close to the perfect investment. It provides safety, growth, tax deferral, low or no fees and limited liquidity. It should be considered for almost every type of retirement plan.