Hello Terry, Read your book several years ago and followed your column back in Chicago when i was living there. Saw you on Etrade video conference which really was outstanding.
What are your thoughts on taking money out of your 401k to start an annuity and why is this subject not offered or talked about in corporate companies nationwide. I know you have to pay a commission each year would be one drawback. Where can i research the pros and cons on this topic. Also, there is a new vehicle called the QLAC that is pretty new that some companies are adopting. Any suggestions or advice on leaning one way or other.
Terry Says: Thanks for your comment, and your question. So let me start at the beginning. If you’re still working at the company, your only investment choices are what the company offers. Mostly those are mutual funds of various sorts. You can’t take money out of the 40l(k) to buy other investments (except under rare circumstances). And you don’t need tax-deferred growth inside your 40l(k) plan because it already provides that!
Some companies are starting to offer the QLAC — Qualified Longevity Annuity Contract, also called a Deferred Income Annuity inside their plans. They are explained in this recent article.
Money set aside in these products (up to 25% of your account value does not count toward your RMD when you reach age 70-1/2.) BUT, if your company doesn’t offer a QLAC option, then you’re out of luck. However, when you retire, you can roll your 40l(k) into a rollover IRA — and then purchase a QLAC with up to 25 percent of your IRA assets.
There should be NO commission on this product — even if you purchase it outside your retirement account. Follow the link in the article to Stan the Annuity Man for a no-fee QLAC.