How To Sell An Annuity

Annuities are financial instruments that pay income to an "annuitant" i.e. recipient who funds the annuity in earlier years. Annuities come in three types, fixed, variable and income and can be sold in two types of ways 1) pre-owned sale and 2) new annuities to clients. 

Annuity features may vary based on the insurance company managing the annuity and this can affect payment structure, fees, surcharges, terms of agreement etc. For this reason understanding the benefits and costs of selling an annuity is important to the successful sale of one. Before selling an annuity it may be beneficial to understand the reasons for the sale as well as the dynamics involved. This article will discuss the types of selling applicable to annuities.

Two kinds of annuity sales

1. Client to buyer sales

In a client to buyer sale an annuity holder or annuitant essentially decides to sell an existing annuity income stream or cash out the value of annuities income stream. The annuity may not be salable if it is held within a retirement plan such as an IRA or Employer managed retirement account. A whole annuity does not have to be sold as partial sales are also possible. Annuities can be sold back either to Insurance companies or on secondary markets. The former is the faster approach but may incur significant surrender charges and less potential for profit.

To sell an annuity to a buyer other than the insurance company, one may wish to research companies known to purchase annuities second hand. The reasons some companies do this is because they can make a profit on the annuities present value before the future value to the client becomes payable. In other words, it is kind of like buying money at a discount for reinvestment and/or resale at a profit. A few of the companies that deal with this type of selling can be found in the sources listed in this article, specifically the article published by bankrate.com and setcap.com.

2. Insurance company to client

Another way to sell an annuity is to clients. Typically, insurance companies are experienced in this area and train their underwriters on both annuity plans and selling techniques. In recent years a controversy has arisen over the sale of annuities due to high commissions and aggressive selling techniques that have caused some companies to be sued. When being sold an annuity, it is advisable to understand all the fees, surcharges, maintenance costs, insurability, guarantee and details of the annuity. If the annuity provides a reasonable rate of return after the service costs are deducted, then it may be an advantageous tax deferred use of money that may also offer garnishment protection, guaranteed future payments and varying rates of returns.

Tips to consider when selling an annuity

Before selling an annuity, it can be a good idea to think about all the factors, costs, implications and reasons behind the sale in addition to investigating different potential buyers of the annuity. Having a good understanding of the dynamics behind an annuity sale can help make the decision to retain or sell an annuity more sound. Below are a few tips that one may ponder before selling an annuity.

• Contact the Annuity Manager: The Insurance company may want to talk around selling, but they should have all the details available
• Contact a Settlement Company or Lawyer: If the insurance company refuses to sell the annuity, contact a third party such as Settlement Capital Corporation for additional assistance.
• Calculate the advantages of cashing out an annuity income stream
• Weigh The tax implications of the income from sale against potential return on income
• Contemplate purposes of selling an annuity to justify the rationality
• If reinvestment of the sale amount of the annuities present value yields a greater return than the future value of the annuity after fees and costs, selling may be a good idea.

The selling of annuities by annuity holders is a relatively new phenomenon and is a result of an evolving securities market in which cash and financial derivatives improve operational ability of financial institutions, cash flow and liquidity within financial markets. Annuity sales provide both individuals and financial institutions more financial options to improve financial management, efficiency of operations. The annuity sale process may not always be worthwhile therefore it is important to consider all the selling options and charges involved in the sale.

Sources:

1. http://www.investorwords.com/225/annuity.html
2. http://www.investorwords.com/223/annuitant.html
3. http://www.bankrate.com/brm/news/insurance/20070507_annuity_secondary_market_a1.asp
4. http://www.setcap.com/settlementcapital/aboutus.aspx?pt=aboutus
5. http://www.fool.com/personal-finance/retirement/2005/08/04/the-quotcriminalsquot-who-sell-annuities.aspx

How to acquire 401(k) loans

A 401(k) loan is literally a loan borrowed from a 401(k) retirement plan. Since 401(k)s are managed retirement plans, and regulated by the U.S. Department of Labor, the policies implemented by 401(k) managers tend not to vary excessively. To obtain and retain a 401(k) loan, one should be employed, have an existing 401(k) with more than $1000.00 and remain employed at the organization for which the loan is managed until the loan is paid off.

Application for a 401k loan

Obtaining a 401(k) loan is easier than obtaining home equity loans because the money is not coming from a bank but rather from liquid personal assets. The application process is fairly easy and shouldn't involve a credit check, supporting loan application documents and lengthy loan application review. Essentially the process of obtaining a 401(k) loan can take place in 4 easy steps.

1. Contact employer department responsible for 401(k) registrations

2. Ask about 401(k) borrowing terms and agreements

3. Apply either online or through the 401(k) management firm

4. Receive funds either via check or electronic transfer

In the case of 401(k) managers who do not allow 401(k) loans, there is a regulation that allows loans to be taken against the retirement plan under circumstances of need. Since specific criteria are needed for these hardship loans, they may involve extra documentation to verify the loans are in fact needed and cannot be obtained elsewhere. The hardship need may or may not be difficult to prove to the 401K manager. (about.com)

401k loan terms

As with many loans, 401(k) loans have specific terms of agreement as determined by regulation and 401(k) manager's policy regarding the loans and in accordance with regulations pertaining to 401(k) loans. Many 401(k) loan terms are standardized and include similar features such as those listed below. The website www.research401k.com and other 401(k) related sites illustrate the terms of these loans, some of which are listed below.

• Loans must be repaid before distributions can be made
• Up to 5 years to repay the loan without pre-payment penalty
• Interest payments made to self
• Up to 50% of account value can be borrowed
• Loan payments deducted from employer pay (after payroll tax)
• $1000-$50,000 borrowing limits
• No distribution tax on loan funds received if paid prior to end of 5th year

Many financial advisors and much financial literature advise against the use of 401(k) loans because of the duplicated losses incurred by the loans. More specifically, interest and/or appreciation is lost in the 401(k) itself, and the difference between pre-tax and after-tax income is lost when repaying the loan (moneycentral.com). In other words, since 401(k) deposits are made with pre-tax earnings, this lowers one's taxable income and increases one's income leverage. When after tax income is used to pay off the 401(k) loan, income leverage is reduced. Additionally, retirement plans are generally best left untouched as the habit of borrowing from one's retirement can become costly if repeated and relied upon.

That said, 401(k)'s are a quick source of financing for emergencies that don't require as much procedure as a home equity loan. The interest is usually around half to two thirds lower than a credit card and when you pay the loan back you're paying yourself and regain some of the appreciation lost from the 401(k) loan. (forbes.com) 401(k) loans are useful as an alternative source of financing

Summary

401(k) loans are made against one's employee retirement savings plan known as a 401(k). These loans are simply acquired through the 401(k) administrator if their policy allows such loans against the 401(k) plan. 401(k) loans are a quick source of capital at an interest rate lower than credit cards, title loans and collateralized loans because 1) interest on the loan is returned to the 401K and 2) the interest rate on 401(k)'s does not far exceed the prime rate which is a key lending rate charged by banks.

401(k) loans may not be an offered service from all 401(k) administrators so it is important to understand the terms of the retirement plan in the case of anticipated and non-anticipated future 401(k) loan needs. The amount of 401(k) loans are capped at $50, 000.00 and do not have penalty or direct cost other than lost pre-tax income leverage and 401(k) appreciation. 401(k) loans may consequently be relatively cost effective financing and useful up until a point after which alternate source of financing may be required.

Sources:

1.http://invest-faq.com/cbc/ret-plan-401k.html
2.http://www.research401k.com/401k-loans.html
3.http://moneycentral.msn.com/articles/retire/basics/4714.asp
4.http://www.forbes.com/2008/09/02/401k-loan-borrowing-pf-education-in_rw_0902investopedia_inl.html
5.http://beginnersinvest.about.com/od/401k/a/aa122104a_3.htm

How to rollover a 403(b) into an IRA

A 403(b) is an employer pension plan similar to an Individual retirement account. In some cases, cessation of employment or changes in retirement planning may require one to shift the funds and/or assets that have accumulated within a 403(b) into an IRA.

There are specific ways to rollover a 403(b) into an IRA without incurring tax penalties and that can therefore save a taxpayer from making unneeded expenditures as a result of the rollover. This article will discuss the methods by which a 403(b) can be rolled over into an IRA without incurring tax penalties in addition to discussing potential advantages, disadvantages and options surrounding the rollover decision/process.

 Assess qualifying distributions and retirement strategies

Not all funds within a 403(b) may qualify for rollover into an individual retirement account. Specifically, annuity distributions, minimum distributions and hardship distributions cannot be rolled over. (www.money-zine.com) Moreover, becoming familiar with what can and can't be rolled over is important.

It may also be worthwhile to considering the possibility of retaining a 403(b), rolling over a 403(b) into another 403(b) with different financial options, a 401(k) or Roth IRA. For example, a 403(b) may have a matching plan and maximum contribution limits that far outweigh the benefits of rolling over into an IRA. Moreover, it may be advantageous from a retirement planning perspective to utilize the best available option for rollover, which may not necessarily be an IRA.

That said, if one decides to go ahead with the rollover due to cessation of employment, or other factors weighing the different types of individual retirement accounts may be helpful. To be sure of which rollover best suits one's financial planning needs, carefully considering all the options available within each retirement investment vehicle can be beneficial and help inform one as to the financial possibilities. Also, becoming aware of the rules, contributions amounts, taxation of, and age limits on various retirement plan options may help one be better prepared for the future.

Methods and tools for Rolling over a 403(b)

The first step in proceeding with a 403(b) rollover is speaking with the appropriate financial institutions, trustees and account managers to inquire about the process. Depending on the institution, account, financial instruments within the retirement plan etc. different forms may be required. A few of the possible forms needed are provided below.

Forms needed for direct 403(b)-IRA rollover (investopedia.com):

• Direct rollover transfer application
• Contribution form signed and dated by IRA institutions
• Distribution request form
• Acceptance of transfer from IRA provider

Additionally, the rollover cannot take more than 60 days upon receipt of funds from the recipient if the 403(b) beneficiary is the recipient. In other words, if one's employer and IRA servicer are not facilitating the rollover from start to finish, the money could pass through the pension beneficiaries hands. In order to avoid incurring tax on these funds they must be re-deposited and traceable as such into the IRA within the 60 day time limit

Determine the type of Individual Retirement Account (IRA)

Once one has performed the direct rollover of the 403(b) into an individual retirement account, that individual may want to roll it over to another IRA such as a Roth IRA. 403(b)'s cannot be rolled directly into an Roth IRA but the IRA can be rolled over into a Roth. IRA's and Roth IRA's have different rules, salary requirements and contribution age limits that may make a second rollover worthwhile. There are several benefits associated with Roth IRA's that could outperform the advantages of retaining a 403(b) or only rolling over into an IRA. Those benefits associated with Roth IRA's are listed below:

Advantages of a Roth IRA:

• Higher maximum contribution amounts
• More investment choices
• A Roth IRA can be held simultaneously alongside a 403(b)
• No age contribution limit
• Earnings may not be subject to taxation upon withdrawal
• No required withdrawal/distribution age
• Contributions are made with after tax income therefore is non-taxable after withdrawal
• Only earnings on maximum contributions are taxable
• Has exemptions for early withdrawal ex-education expenses

Summary

Rolling over a 403(b) into an IRA is a process within retirement planning and personal financial management that may come about due to changes in employment, available financial options, physical relocation etc.

After one has weighed the best financial options available and chooses to go ahead with a 403(b) rollover, the steps to rolling over funds without taxation should not be too complicated or take more than 60 days if one is adequately prepared and informed.

Once the rollover is complete, the beneficiary may also want to consider a second rollover into a Roth IRA if one qualifies for such. These decisions are the responsibility of the individual however and may be made with the assistance of a financial consultant.

Sources:

1. http://www.investopedia.com/ask/answers/142.asp
2. http://www.403bwise.com/wisemoves/irarollover_vt.html
3. http://www.fairmark.com/rothira/roth401k/compare-ira.htm
4. http://www.fairmark.com/rothira/taxable.htm
5. http://beginnersinvest.about.com/cs/iras/f/tradvsrothira.htm