Hello everyone... I am glad I found this forum. I need some professional advice regarding financing some home very necessary home improvements.

It lays out like this
The person is a very healthy 80+ widow [who may live 15+ more yrs] living in Westchester NY who is eligible for a $1200 enhanced star exemption--this is basically available to people over a certain age and who make less then 67K before tax.
Her income [SS and pension] plus $1,000 [$1,000only for the last 9 yrs.] [from a traditional IRA which has remained the sme for about 12 yrs] amounts to close to $67K. Should she cash out the 32K in theIRA she will exeed the limit and lose the $1200 for one year only.

She has a equity line of credit for $75K[could get more]. She is paying 7.5% interest only on about 18K which is about 130/month I think--The $18K must be paid off or refinanced in 5 yrs--or sooner. I suspect sooner with the 7.5% [chase] she is paying.

Her options,until I am told differently] are use the equity line [18+30K and pay tax-deductible interest forever and not lose the enhanced star for just the one year or to cash in the IRA and pay the 10% penalty +tax [25%] or take another low/no fee line of credit at a lower rate.I am no guru.
Of course she could sell the house for a huge profit and live in the lap of luxury for the rest of her, life but she wants to stay....
She has 4 grown children that will not miss the [taxable] IRA distibution upon her death. All the kids are in,AND WILL BE IN, a higher tax bracket than her---Paying the interest is not taking food out of her mouth, but is a complete waste of money even though it is deductable. FYI the ira lost $1600 last month,but it might gain $2K this month. Typically it goes up and down only to remain the same for the most part.

There is also an annuity [I do not know what kind] that started out at 100K and once went up to 200K and is now down to 100K. The widow was told by the agent that the annuity will be worth the 200k if it is left intact and not cashed in. Is this possible and if so what kind of annuity is that??? If it is not possible the annuity should also be considered as a source of funds --or is there a penalty with that too.

I think when you hit a certain age,that is past your actual life expectancy, there should be no penalty for totally withdrawing an IRA--taxes yes --penalty no.Here in NY people with 5 kids in school [including preschool?? but not college] get and making less than 120K I think receive a check for $1,000 for each kid and now they will be getting $600 for each parent +300 per kid compliments of the US congress/the seniors for one--- Yet these same seniors in need of cash are still forced to pay 10% penalties to make necessary improvements

Thanks for any help

__________________
Rockstar---out

There is no 10% penalty on IRA withdrawals for an 80 year old. It's only for those under age 59 1/2.

The annuity $200k is a locked-in death benefit, also called a "high water mark". Basically, annuities can lock in a death benefit based on cash value at certain points in time (typically contract anniversary). This $200k is only accessible via death, but that doesn't sound like its an issue.

The only "penalty" involving the annuity money would be surrender charges on amounts greater than 10% of the cash value. Annuities are highly complex products so you need to consult the policy for surrender charges on withdrawals. There is no 10% penalty because she is over 59 1/2.

Don't know where you found information stating that there is a 10% penalty for withdrawing from an IRA for anyone over the age of 59 1/2, because that's just incorrect.

The best option is to take a look at the annuity to fund it. Withdrawals will come off the death benefit, so if you take out $32k then the death benefit will go from $200k down to $168k. Not a big deal for her situation. The annuity seems to be 100% principal (started at 100k and is now 100k). Therefore, the withdrawal would mostly not be taxable income, or would have a very small amount. But you have to check to see how old the policy is and whether there may be surrender charges.

Using the annuity would avoid the tax consequences, and avoid using the equity line and paying interest. Mind you, the equity-line is not a bad option if she has to use it.

But I think there is a 10% penalty if you liquidate the whole ira though and that is what I was saying---and it is counted toward her income so she loses another $1200 in the enhanced star,but just for 1 year...

It would be just like NY to count that [$32,000withdrawal from annuity] as gross income and deny her the enhanced star $1200. It is a sticking point with her--I can understand, but come on it is only for 1 yr




Thanks and I really appreciate you input.

__________________
Rockstar---out

There is no 10% IRS penalty for liquidating the entire IRA, not even in New York. IRA's are federally regulated, so any 10% penalty would have to be something administered by the product itself (i.e. an annuity). And yes, any IRA withdrawals count toward ordinary income, every penny.

If the annuity is non-qualified, then withdrawals from such annuity are taxed on a LIFO (Last-In, First-Out) basis. Therefore, earnings are taken out first, and are 100% taxable. Then principal is withdrawn and is NOT TAXABLE. You stated she put in $100k, and now has $100k, which means her actual earnings are very small. This is the amount that would be taxable income to her if she withdrew money. If her account value is less than what she put in, then any withdrawal is 100% return of principal.

Therefore, if the annuity is non-qualified, AND she has made virtually no money with it, then she CAN take the money out of the annuity, without little to no affect on her gross income, AND keep the $1200 enhanced star.

Thanks very much...

__________________
Rockstar---out

Just to add to Mynion's comments.

The ONLY annuity whereby one could invest 100k, have the cash grow to 200k, and then a few years later ONLY have 100k would be a Variable Annuity.

Traditional Fixed Annuities and Fixed Indexed Annuities DO NOT lose value.

Variable Annuities are a bloated pig with lip stick and are the single reason so much negative press has been given to annuities in recent years as the print media simply lumps ALL annuities into one bucket, mixes them all together then writes a convoluted and inaccurate story.

Regarding the death benefit:

I would check with the issuing insurance company's policyowner service because generally the death benefit on a Variable Annuity is the GREATER of the original premium paid into the contract OR the Accumulation Value at the time of death.

That being said the death benefit would be 100k UNLESS (for an additional fee) the owner purchased an "Investment Protection Rider."

"VARIABLE" annuities violate the fundamental and foundational "Safety of Principal" aspect inheirent in ALL annuities EXCEPT "the infamous "VARIABLE" annuity."

One point, just to clarify, and I know Mynion knows this but he did write:
UNLESS, it's a Roth IRA. Then withdrawals are not taxable and there isn't any Required Minimum Distribution at age 70 1/2.

__________________
Gary Spicuzza, *SAFE
Copyright 1956
No Rights Reserved
*Self Appointed Financial Expert

__________________
Rockstar---out

Variable annuities have their purposes. Unfortunately, this is a highly complex product that can be filled with hidden fees/charges, not to mention some of the abuses of the product.

There is a lot to like about some variable annuities, and they can accomplish some things that fixed annuities and other investments cannot. Problem is, most advisors/agents that sell variable annuities do so for the sizeable commissions some companies provide instead of leveraging it as a planning tool.

Most variable annuities today have Enhanced Death Benefit features. And yes, they are not free. One of those features allows Gary's definition of a death benefit (greater of original premium or accumulation value at death) to be "enhanced" to include other options, like: 5% interest on principal or highest contract anniversary accumulation value. From your original information, it seems that this policy has an enhanced death benefit feature, so check it out to make sure.

Since it is 12 years old, it likely does not have any surrender charges, unless it is one of those rare abusive policies with a 20-year surrender charge (Midland), or one with a lifetime surrender charge (Allianz). Since you said you think it is Prudential, their annuities are pretty typical of the industry.

Remember, with any insurance product, including annuities, the contract is king. So get a copy of the contract as it will provide all the details.

Mynion I have a question?

You wrote referring to Allianz annuity:

Quote:

...or one with a lifetime surrender charge (Allianz).

Which Allianz annuity carries a lifetime surrender charge?

While I put the bulk of my annuity business with Aviva I'm not aware of any annuity product with Allianz that has a "lifetime surrender charge."

They do have "Two-Tiered BONUS Annuities" whereby one must hold the contract for 10 years then take the distribution over another 10 years to get the highest payout and all of the bonus credit (5 years for beneficiary) but I'm not aware of any annuity surrender charge schedule with Allianz being greater than 10 years.

If you have the particular product name please post as I'd like to research this.

Best regards,

__________________
Gary Spicuzza, *SAFE
Copyright 1956
No Rights Reserved
*Self Appointed Financial Expert

I'll see if I can find the name...

It was an Equity-Indexed annuity product from at least 3 years ago. The contract was brought into our offices as part of a review, and the client's attorney had read the contract and didn't like what he saw.

Basically, it had no annual fees, could be tied to the S&P 500 and/or Nasdaq 100 in any combination/percentage. If I remember correctly, it had a 12.5% back-end surrender charge. I think it was part of a class-action lawsuit, too, as mentioned in this link:

http://the********.blogspot.com/2007...-backlash.html

Don't know if the annuity is still available.

The only way to bypass this surrender charge was to annuitize the policy, or take out the 10% free withdrawal each year until liquidated. There were even some fees/charges on your annuitization value if you annuitized early, I think it was in the first 15 years or something.

Actually, I think I found it... Masterdex 10...

ALLIANZ LIFE REPORT FRUB PUBLIC 2006