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Ask Dave

Run from that guy

After losing his job, Durnae's husband has been told he should roll his 401(k) into a hybrid annuity. Dave strongly disagrees, and he explains why this would be a bad idea.

QUESTION: Durnae’s husband recently lost his job. He had almost $230,000 in a 401(k), and he’s been told he should roll that into a hybrid annuity. Dave completely disagrees. He offers some advice and walks Durnae through the ins and outs of their situation.

ANSWER: Absolutely not. You don’t have an investment advisor. You have an insurance agent. There’s no reason to put a 401(k) into an annuity. Annuities are there to protect the money, as it grows, from taxes. Guess what? The 401(k) is already protecting it from taxes.

You can roll it into an IRA in a series of growth stock mutual funds, and you’ll have half the fees. They won’t make anywhere near the commission they’d make on an annuity, and you’ll get much better results in the end.

Yeah, I definitely would not do that. I don’t have a single annuity, and I’ve got a lot of investments. I would roll it into a traditional IRA, where you’ll have no taxes and much lower fees than an annuity. I would put it across four types of mutual funds — growth, growth and income, aggressive growth, and international.

When you buy mutual funds, the fees are one-fourth of what they are on an annuity. The commission to the person selling is much lower than it is on an annuity. That’s one of the reasons people try to sell so many annuities. They’re not evil; they’re just not the proper product for you in this situation. I would run from that guy!