Tax-Differed Annuity, 100k at 19

[YouMyBoy]

I'm 19 years old and have like 100k+ to my name from poker. My dad is suggesting I put some $ into a tax-differed annuity that I can't touch till im 60. Does anyone have any info on these or at least a good link?
What is the minimum opening amount for one of these?
Do you think this is a good or bad idea?

[punkass]

What do you want to do with the 100k ultimately? house? college? retirement? is this money all really yours, to do with whatever you want?

I don't know much about tax-deferred annuities, but I would think having one at the age of 19 is probably borderline ridiculous.

[prohornblower]

I'm pretty sure annuities have high mark-up.

First and foremost you should put $4K into a RothIRA every year that you can. Aggressive growth mutual funds. Also, if you get a job that offers a 401(k), you should put a large chunk into that (up to $15K).

A lot of this depends on your goals. You may consider putting 10-15% of this into an FDIC-insured e-savings account for stability.

With the rest, you should probably buy independent* growth mutual funds.

*Independent meaning outside of your retirement plans.

PS: If you put $4K into a Roth it'll be worth about $512K at age 68. That's if you never touch it again and it earns 10% per year.

[prohornblower]

Oh, also not to be nitty, but it's "tax dEferred", meaning you pay taxes on it LATER.

I don't know why you'd want to defer taxes when you've got the capital now, and you have a good 40 years of growth potential. That is why a RothIRA is good. That is "post-taxed" money you are investing.

Good luck. Either way you should be able to set yourself up pretty sweet with little effort. Don't do anything stupid with your money!

[gull]

It sounds stupid to me, but I don't know the details. Why not just invest it?

[bekman]

Annuities are for old people, and while they are a nice guaranteed payout over years... you basically would give them your 100k and they would pay you ~6k/yr until you die. There is more to it than that, such as what happens if you are married and you die, or have kids, and some grow based upon a fixed amount while others vary with the stock market. Ultimately, you will do much better by following the advice of the previous poster about donating to your newfound Roth IRA. At your age you can add $8k to a roth in 2 years and by age 60 you have over $1.5mil. If you keep adding, imagine how you will be set up. Spend some of your hard earned money on a real financial advisor that has some letters behind his name and let him advise you with the help of a CPA. CPA will help with writing your taxes for this year, and together they can help you keep most of your money away from Uncle Sam in a legal method. Congrats, wish I were you.

PS Don't buy a car unless you don't already own one, and if you do buy one-get it used.

[DesertCat]

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I'm pretty sure annuities have high mark-up.


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That's the problem with them. An annuity is only tax deferred because the government treats it as "insurance", so every annuity comes with some sort of insurance component, which I doubt OP needs. Plus their is the insurance companies fees, and commissions to the broker who sells you the annuity, which are considerable.

There appears to be types of annuities. The ones that hold your money and pay you a nice stream of payments until you die, and those that accumulate tax deferred and are used as quasi-retirement funds. Since OP's dad used the magic term "tax deferred" I'm guessing he meant the latter. In this case it's like an IRA or a 401k, except you typically have a narrow range of choices on what funds you want to invest in.

The problem it's a lousy retirement vehicle. The funds, the insurance company, and your broker will all take advantage of you and you'll pay much higher fees than necessary to all three. The broker will often get a big commission deducted from your investment, so your account starts behind the eight ball, and if you change your mind in the next few years you'll have to pay a surrender charge. It's called getting it in the ass when you go in, and when you come out.

The advice to get a roth IRA or 401k is all much, much better. Lower fees, no commissions, more choices, and if you change your mind, no surrender charges. Goto Vanguard.com and surf their options. I setup my 401k through Fidelity because at the time Vanguard didnt' deal with self employed 401ks. If you have a choice, I think Vanguard is the cheapest (best) option.

Oh, and you don't even need an IRA or 401k if you want to invest the rest of the money for the long term tax efficiently. Just put it into an index funds. Because of their low turnover (they don't sell stocks very often), an index fund is very tax efficient and most of your gains will be deferred for a very long time. I recommend index funds either inside or outside your retirement accounts, they match the market, never trail, and you don't pay high fees or worry about your fund manager losing their touch, which most eventually do.

But remember, any long term investment means you must be prepared to ride the swings of the market for the long run, at least ten years. That gives you the highest long term returns. Otherwise, if you have goals of using some of money in the shorter term (say as a down payment on a house or a dowry for your indian bride), you might want to consider keeping that money in a bond fund, CDs or money market so you don't have volatility risk (variance).

dude you should definately investtttttttttttttt that papaaaaaa

[BalugaWhale]

I thought you can't put poker money into a Roth IRA.

[Thremp]

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I thought you can't put poker money into a Roth IRA.

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No WTF?