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By Bob Moeller
WEAC Member Benefits
February 2005
Financial
Planning Seminars
Achieving
Financial Independence
About a month ago, I met with a member who was concerned about tax-sheltered annuity transfers she had made after retirement.
First, she transferred from a perfectly fine TSA to an insurance company TSA with new, high withdrawal charges that the salesperson did not fully tell her about. To make things worse, a couple of years later she was talked into transferring out to another insurance company while still in the middle of her penalty schedule with the second company. So she was going to pay a high penalty moving from company two to company three, and then have another high penalty if she transferred out of the new company within several years.
Why did she make the last transfer? Because the insurance company gave her a “bonus” payment, and assured her she would earn more with their product. She knew she had made a mistake with each of the transfers, but assumed there was nothing she could do about it.
Fortunately, in this case there was.
As part of any deal regarding an insurance product like a tax-sheltered annuity, you have a 30-day “cooling off” period, and this member had only signed for the final transfer about 20 days earlier. I recommended that she rescind her final transfer and helped her prepare the necessary letters. Her second company agreed to take back the money and credit her account in full, including the withdrawal penalties they had extracted.
I frequently read about how government agencies are investigating insurance company practices of selling new annuities to people by replacing their old annuities, even if their old annuities are fine. Why do they do this? For the commissions, pure and simple.
I constantly see examples of this, even cases in which the same insurance agent who sold the original policy now swaps for a new policy and generates more commissions. I regularly warn people to not let their own insurance agent talk them into any new products.
Yet, sometimes your TSA can be greatly improved upon by transferring it to a new product. If you have a high-cost, low-reward product, you should be looking for an opportunity to transfer it to a better product. But, you have to determine which product is better yourself, not just listen to some trained salesperson whose living comes from commissions. Rule: There is no good financial reason to invest TSA contributions in a product that has surrender fees or mortality fees. Read that last sentence again.
Here are some questions you should demand answers to (preferably in writing) before you decide to transfer money to a new product.
So far, we have talked only about the product. Now let’s look at some questions and comments you should address about investments:
Posted February 1, 2005