Explore 403(b) retirement plan rather than annuity

Dear Bruce: I have $32,000 in a 401(k) to which I no longer contribute. It is in the form of mutual funds that are widely diversified with money market, global natural resources, treasury bonds, etc. I also have about $18,000 in credit-card debt ($12,000 at 3 percent interest, $4,000 at 0 percent, $2,000 at 12 percent). I am working very hard to pay these off. I spend $485 per month – more than the minimum payments – to pay down the debt.

I now teach school, which is why I no longer contribute to the 401(k). I am trying to get a 403(b). But I am told it is better to get an annuity at 4 percent and to borrow against it so that I can pay less per month on my debt and save more toward retirement. I’d be paying myself instead of another financial institution. Would you agree with this? Should I roll over my investments to an annuity and borrow against it to pay off my debt? My 401(k) account has grown from $20,000 to $32,000 in the past five years, without any contribution from me. I have just moved the money around from money market to stock funds. Please let me know your recommendation. – N.S., via e-mail

Dear N.S.: Taking your last observation first, your account has increased well over 50 percent in five years. It seems to me you’re doing very well, and I wouldn’t interrupt that. I cannot imagine why, other than the commission involved, anyone would suggest you take the $32,000 and put it into an annuity and then borrow against it. If it’s possible, you should take advantage of the 403(b), the equivalent of a nonprofit company’s 401(k). You didn’t mention if your employer would make an additional contribution, but the tax advantages of the 403(b) are certainly worthwhile and, again, I cannot imagine any advantage to you with the annuity. You will be told you can’t lose, and that is possible since there is a life-insurance component to the annuity. In order to guarantee the “no loss,” you will have to die.

In my opinion, without more details, this is just another incidence of someone attempting to pedal an annuity because of the high commission.

401(k) cash-out a bad idea

Dear Bruce: I have about $50,000 in my 401(k), which I am thinking about cashing out. I make plenty of money, I’m 55 and I have no plans of retiring anytime soon. The way the market is going I’ll never get where I want to be. I intend to pay off a mountain of high-interest credit-card debt. Any comments? – R.P., Orcutt, Calif.

Dear R.P.: You betcha! If you make “plenty of money,” what are you doing with “a mountain” of credit-card debt? Anybody who has this type of indebtedness is either spending beyond his means or just not managing his money properly. Either way, you need to straighten out your act. As to cashing out your 401(k), that would be a major mistake. You are going to immediately pay a penalty of 10 percent, plus the taxes. Further, why sell out low? If you don’t need the money, the likelihood is your 401(k) will recover a great deal of value it may have lost. All the way around, I think your financial attitude and actions require some retooling.

40 years of premiums count for little

Dear Bruce: We’ve had automobile insurance with the same company for 40 years. We own six vehicles, and are paying more than $3,000 in premiums. In addition, we carry other insurance with the company. We’ve had problems in the past few years – four accidents, two of them our fault. One member of the family has gotten two speeding tickets. Our agent says the company will not renew our policy because of the loss ratio and frequency of claims. After 40 years, they don’t want our business. I’m 68, and my husband is 80. We have no public transportation in the area, and we are told no other insurer wants our business because of our age. What can we do? They have taken our money all these years, and now they dump us. – K.S., via e-mail

Dear K.S.: Yours is a familiar tale, one that has been replicated all over the country, and one that should cause insurance executives to hang their heads in shame. It is true that many older people become less desirable risks, but the fact that you have been profitable for four decades should be taken into account, or so it seems to me. Be that as it may, most states offer some type of an assignment program, whereby people who are denied insurance through the traditional markets can be insured. I’m sure your agent can arrange this, although since the profit margins on this type of enterprise are relatively modest, he may not be enthusiastic about it.

IRA’s aren’t generally transferable

Dear Bruce: I got a small individual retirement account 10 years ago, and my life-insurance company’s broker turned it into a nice portfolio. I left the dividends in it to buy more stock. It is in my name with my husband as the beneficiary. Our life-insurance company is the custodian on the account. I don’t know why, but I put this in my name. My husband is 57, and I am 54. Can I transfer this account to his name so that he could start taking it out at age 59? – G.I., via e-mail

Dear G.I.: When you open an IRA, it must be in your name. Ordinarily, IRAs cannot be transferred to someone else. You can start taking out the money now, but there will be a 10 percent penalty, plus the taxes you guys pay on your joint return will have to be addressed as well. You’re going to have to wait another five years before you can pull the money out without paying the 10 percent penalty. The taxes will be paid in either case.

Bruce Williams is a national radio talk show host and syndicated columnist. He can be reached at bruce@brucewilliams.com.