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Ask Dave

Which Annuity Option Should I Take?

Marianna has 2 choices when cashing out her late mom's annuity. Dave tells her about how to factor an IRA and taxes into her plan.

QUESTION: Marianna’s mom died and had an annuity that looks like an IRA. There are 2 options to claim the money, a 5-year payout and a cash value. Dave thinks a modified version of one of those is the best choice.

ANSWER: Choose the cash value and roll it to an IRA. That’s the problem with annuities; they’re a ripoff. A 5-year payout total includes interest, so it would be a larger figure. If there is a balance on this annuity, it really should just transfer to you guys upon death. Roll it to an IRA if there’s any way you can avoid using it today, and let that grow. If you pull it out now, the government will take up to 30% in taxes. It’s good to get away from annuities and go to good mutual funds.