Bruce Williams

Dear Bruce: Can you explain to me what IRA stands for and what the difference is between a Roth IRA and a conventional IRA? — Jack, via emai

Dear Jack: IRA stands for Individual Retirement Account. And the difference between a Roth IRA and a conventional IRA is considerable

A Roth IRA is funded with post-tax money. Any money the Roth IRA earns from that point forward is totally tax-free. A regular IRA is funded with pre-tax money. Its earnings are put aside and taxes on those earnings are deferred. When you finally take the money out, you have to pay the taxes.

Does that mean the Roth is a better idea? For many people, it surely is. The higher the tax bracket for the individual, the more the Roth is worth. In the event that you pay little or no taxes, then the Roth has less value.

Dear Bruce: My husband and I both had IRAs with Broker A. Due to a falling-out over fees, we moved the IRAs to Broker B

We each had an annuity in our accounts. Broker B would not accept custodianship of an annuity he didn’t sell. We attempted to open an account with a financial adviser and he, too, would not accept the annuities. So we are now stuck with Broker A and must pay annual fees for IRAs that contain only one security.

I have talked with the IRS and asked if we can become our own custodians. They said no because an IRA custodian must be insured and approved by the IRS. We do not want to cash in the annuities and take the loss that you frequently warn people about. Is there any other option? — Reader, via email

Dear Reader: How do you spell “stuck”? The other brokers will not accept custodianship because they didn’t sell the annuities, they earned no commission and that is the end of that. The IRS advised you that you cannot be your own custodian. It has to be a third party

You don’t want to cash in the annuities and take the loss; I understand that. You didn’t mention the size of the annuities. If they are large, you should leave them where they are and pay this guy his fees until such time has passed when there will be no surcharge. If you really want to cut the relationship, cash them in, take the hit and get on with your life.

Unfortunately, this is another reason you want to be very careful before you buy an annuity. Recognizing the penalties is just one of the reasons you should be cautious.

United Feature Syndicate

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