Variable annuity in 401k, what to do?



It sounds like you're on the right track. Contribute to get the match,
then look to the Roth. Even if the annuity is sucking out 2% per year
the match makes up ground. It would take some really lousy subaccount
alternatives to make this all a losing proposition.

When I come across severely-limited 401k options my mindset is "where
can they do the least damage?" It can sometimes mean focusing on
something boring and low risk, because the stock mutual funds (or in
your case subaccounts) look poorly managed. Or, you choose just one
mutual fund or subaccount even though that leaves you undiversified -
because it's the best there is. And you make up the difference by
rounding out your investments in your rollover IRA, to the extent
possible. Point being it's just a different sort of decision than when
you can put the $ wherever you want.

Keep in mind also that there's another scenario here. Your employer
chose this VA for the 401k probably because it was a cheap way to set
a 401k plan for just 4 employees. Give it a few years and between the
declining costs among 401k providers and some natural growth to the
company (and some subtle nudges by you), you might have a much-better
401k plan available to you. At that point you could shift the money to
the better alternatives. So you might find out how that would work and
whether the surrender charges would apply. Perhaps you could stop
contributions to the annuity, and annuitize it over some short-term
period, with the payments going into your new plan - I've seen that in
403bs when they added mutual funds alongside pre-existing VAs. Find
what's possible and what the costs are.


I am a real rookie here, but in my mind it is going to take quite a
while(after i really get compound interest working for me) before the
2% or more fee per year offsets the 4% match from my company and the 4%
match from the annuity company. Hopefully by then, like you said, we
will be big enough to move to something more traditional.

PS I unfortunately need to respond to one point in the other thread -
"Elle" is insinuating that I'm somehow a shill for annuities, that I
make money from them or god knows what. Totally false - please ignore
that nonsense. I'm an investment advisor & attorney, annuities aren't
really a part of what I do. Except, I guess, reviewing scenarios like
yours, where it's the only alternative, or looking at a client's
existing portfolio and saying "geez it's a shame you were sold that

I have read with interest many posts here which seem to stray a bit from
topic due to the individual posters viewpoint. In my opinion, as a very
"green" investor (new to all of this), this is what makes personal
finance PERSONAL. It is no different than sitting down with friends and
arguing about who has the best quarterback, or whether a zone defense is
better than man to man. I appreciate the input of EVERYONE and do not
blindly accept "facts" from ANYONE. Only a fool lets others do all of
his research for him. Again thank you from a rookie.



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