Variable annuity in 401k, what to do?


S

ScottF

I recently became eligible to join the 401k plan at work. I had a small
amount in a rollover IRA (I think that's what it's called) awaiting plan
eligibility. After signing up for the 401k I realized it is invested in
a Pacific Value variable annuity. I have been trying hard to learn as
much as possible about investing lately and what i see so far about
this type of plan is not good. Any suggestions? I actually am not
eligible to join the plan until after Sept. 20, however i signed all of
the paperwork already. I am 32 and the amount going into the 401k from
IRA is only about 9k. Maybe I should just not contribute to 401k and
start Roth for wife and I? What do you guys think?
In 2.5 to 3 years will be debt free except house and will have a good
deal available/month to invest.

Thanks in advance for being understanding of a novice investor and
first time poster!!

Scott
 
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T

Tad Borek

ScottF said:
I recently became eligible to join the 401k plan at work. I had a small
amount in a rollover IRA (I think that's what it's called) awaiting plan
eligibility. After signing up for the 401k I realized it is invested in
a Pacific Value variable annuity. I have been trying hard to learn as
much as possible about investing lately and what i see so far about
this type of plan is not good. Any suggestions?
Scott,
What would be your reason for moving the IRA assets back into the 401k?
There are a couple reasons but they don't apply to most people.

And a lot of people prefer the flexibility that comes with an IRA. An
IRA is a good place to round out your retirement savings with
complementary investments - investing in the categories that aren't
covered so well in your current 401k plan. Also, should it make sense,
you have the alternative of converting your Rollover IRA to a Roth IRA -
which is not the case if the dollars are sitting in a 401k instead.

If anything I think the trend is more towards using job changes/etc to
"free up" 401k assets, rolling them into IRAs, and leaving them there
rather than sending them back to your next employer plan. At least for
those that don't cash it out and buy a Durango.

-Tad
 
E

Elle

ScottF said:
I recently became eligible to join the 401k plan at work. I had a small
amount in a rollover IRA (I think that's what it's called) awaiting plan
eligibility. After signing up for the 401k I realized it is invested in
a Pacific Value variable annuity. I have been trying hard to learn as
much as possible about investing lately and what i see so far about
this type of plan is not good. Any suggestions? I actually am not
eligible to join the plan until after Sept. 20, however i signed all of
the paperwork already.
Have you at least tried to speak to your company's administrator to cancel
the processing of this paperwork?

It's only Sept. 8. Seems to me there might be hope. It never hurts to ask.

(I echo Tad's comments about not transferring this 9k to the 401k. Put it in
an IRA instead.)
I am 32 and the amount going into the 401k from
IRA is only about 9k. Maybe I should just not contribute to 401k and
start Roth for wife and I? What do you guys think?
Are you sure this variable annuity is thee only possible option within this
401k?

How much of your future contributions to the 401k does the company match?
In 2.5 to 3 years will be debt free except house and will have a good
deal available/month to invest.
Good for you. Living within one's means is the first step towards
accumulating wealth.

Don't be shy about asking how to allocate among investment options (stocks,
international, mutual funds, bonds, bond funds, CDs) the money you have,
say, in an IRA or elsewhere, here.
 
B

BMS

Get the participant summary. It should detail your options, if there is a
match you want to put in enough to get it.

If this is a small company and there are no surrender charges, then a VA is
not as bad as some of the press will have believe.

I wouldn't worry about rolling over the IRA into the new plan right away. If
you thought you were going to be here for the long term, it might be worth
it. If not, then it gives you a place already set up to roll this money
into.
 
J

jIM

is the VA bad because of expenses, or is their another reason a VA
inside a 401k is bad? I do agree with others that rolling old 401k
into a rollover IRA (and possibly converting to a Roth) is a good
suggestion. Minimize money going to 401k to maximize match, then send
other monies to be invested to an IRA/ Roth IRA and then to taxable
accounts if any more is left to be invested.
 
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D

David Efflandt

I recently became eligible to join the 401k plan at work. I had a small
amount in a rollover IRA (I think that's what it's called) awaiting plan
eligibility. After signing up for the 401k I realized it is invested in
a Pacific Value variable annuity. I have been trying hard to learn as
much as possible about investing lately and what i see so far about
this type of plan is not good...
Do a web search for "Pacific Life class action". They have been steering
people to high fee (profitable for them) funds that already have a tax
advange that is wasted if done within a 401k.

That said, our 401k is apparently variable annuitties (called "separate
accounts" instead of "mutual funds"), but they are fully vested with no up
front fees or early surrender charges and expense ratios are similar to
public mutual funds.
 
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