10% Penalty on Annuity

[Julieolo]

Did you see the video where Ilya Lerma talked about an error being portrayed by a prosecuting attorney as a betrayal? This whole thing feels that way - according to the way this thread is shaping up

I did watch the videos but I don't comprehend them in the same way you guys do. I think that as I learn a little here and there I need to watch them again and I would probably pick up something new each time.

Btw, I can't remember if I mentioned it but I did send an email to John Olsen. I am trying to follow all the advise everyone is giving me here in hopes of learning as much as I can.

 

[DHK]

It's not necessary to watch those videos again. They're just good warnings for us as agents and advisors.

John Olsen is a great person to consult with. He'll steer you well.

 

[Julieolo]

It's not necessary to watch those videos again. They're just good warnings for us as agents and advisors.

Yes but the more I understand the lingo the better I can ask the right questions and use the right keywords.

John Olsen is a great person to consult with. He'll steer you well

I got a response from him! It is very positive. Thank you very much. I'll be talking to him tomorrow.

 

[DHK]

I look forward to hearing how it goes.

 

[scagnt83]

Ok, I just contacted them and they have asked me to send them a letter of complaint.

What I have is a copy of the application but I believe some of it is missing. There are 4 pages but at the top I can see that I have page 4, 7, 14, 15. Some of it is a little blurry as he made copies on a copy machine. He also gave me an Annuity Information packet but this is a vague description and not everything in it applies to the contract.


I do not remember this part of the process and I don't have anything resembling this. Is this something I can get from them if it does exist?


When I meet with him, what I told him I wanted was something that I could invest in for 3 years so that if the interests rates went up I could reinvest. I remember being confused because I kept seeing one of the pages had an image that looked something like this...

1 | 2 | 3 | 4 | 5 | 6 | 7 | 8+
9% | 8% | 7% | 6% and so on

So I kept asking him, I can get the money back in 3 years correct? And he just kept saying yes. Turns out this is correct if I want to pay 7% penalties. When I asked what did it mean by 7 years, he said that I could keep it in there for 7 years, or I could keep it in there for 99 years if I wanted.

Now I take full responsibility for this mistake. I did not under stand, and I should have received a second opinion, I should have taken the policy home and read it over until I understood it. As much as it hurts, this is my fault, and I feel completely stupid and embarrassed by it. 3 years is a long time. 7 years seems like a life time.

But there is no doubt that if he had told me that I would have to pay a 10% penalty on any money I received I would have said no way.

200,000.00 is the amount.

AIG is the company. I don't think they get much bigger then these guys right?

Draft the letter of complaint tomorrow then. Email it, fax it, and also send it registered mail. You need to include a few things:

- Age when you bought the annuity, goals you wanted to achieve, and timeline for those goals.

- Questions you asked during the sales process and the agent's response. Specifically the ones outlined above.

- If he told you about the 10% penalty there is no way you would have done this.

- His responses (and non responses) to your questions and concerns after "being surprised" about the 10% penalty.

- Their compliance department tried to "sell" you on keeping the product instead of addressing your concerns or informing the Carrier of your complaint. (they are required to inform the insurance carrier of any customer complaints)

- He never gave you the Contract

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It is interesting that he did not give you the full application or the Contract.

Now I will say, a lot of clients forget that I gave them a Contract. Not on purpose, its just human nature. So I would suggest you look through your files and remember back to when the policy went active. It might be filed away somewhere. Also make sure it was not emailed to you.

IF, you were not given a policy, then the Annuity Contract is not valid from a legal standpoint. Legally, you must take "receipt" of the Policy for it to be a valid legally binding contract. Often, carriers require that a "delivery receipt" be signed by the client. This says that you accept the contract and the agent has given you the Contract (hence the term delivery receipt, its a receipt for delivery of the contract to you).

Some states require this, others do not. Most carriers want it signed regardless. Do you remember signing anything AFTER the initial application?


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Speaking as an agent, 95% of clients will sign what I tell them to sign. The carriers know this, so do the regulators. If the agent checked the box and told you to sign beside it, and he never explained it, that is just another big violation that he made. Now, features such as the Return of Premium will reduce the return you get on your annuity, that is not a common feature to choose. But if it was an option, you probably wanted to at least know about it.

Explain that you asked questions and signed what he told you and assumed what he told you about the features of the product was accurate.

 

[Julieolo]

Now I will say, a lot of clients forget that I gave them a Contract. Not on purpose, its just human nature. So I would suggest you look through your files and remember back to when the policy went active. It might be filed away somewhere. Also make sure it was not emailed to you.

Nothing was emailed to me. I keep an AIG file with everything related. The only other option is that I could have put it in my safety deposit box. I will check on this tomorrow.

Thank you for the outline idea for the letter of complaint. I wasn't sure where to start. This helps a lot.

 

[scagnt83]

Nothing was emailed to me. I keep an AIG file with everything related. The only other option is that I could have put it in my safety deposit box. I will check on this tomorrow.

Thank you for the outline idea for the letter of complaint. I wasn't sure where to start. This helps a lot.

It sounds like you are only 1 year into this annuity. That also plays a part (in your favor) in this situation.

You brought up this complaint immediately upon finding out about the tax penalty. (correct?). That works in your favor and shows that you were blindsided by this.

IF you did not receive the contract, then you have a very strong case and I would be highly surprised if AIG did not make this right for you. Technically, legally, you never agreed to accept the contract.

Other important things for your letter:

- IF the agent did not tell you about the "free look period", tell them that in the letter.
This is a time period after signing the Delivery Receipt (& receiving the Contract), which you are allowed to cancel the policy free of charge and receive all of your funds back. The actual time varies from state to state, but is usually around 30 days. This is key to tell them if you were not informed of it. Especially if you were never given the contract or signed the "delivery receipt". (which you def need to tell them as well)

- You need to specifically say that "because the agent failed to disclose crucial product info, you are taking an unnecessary and surprising financial loss".

- You also need to tell them what you want.... do you want all your money back? Do you want AIG to reimburse you for any pre 59.5 tax penalties you pay? You need to tell them what a satisfactory outcome for this situation would be.

At this point I wouldnt blame you for just wanting out of the policy. AG does have some good annuity products, I sell their Indexed Annuity products some. Their normal fixed annuities are not that competitive at the moment (you can find better rates).

But it also sounds like you might just need a new set of eyes on your situation. Once you are over 59.5, annuities can be a fantastic tool to generate income.

Obvoiusly, you live and learn. But if a financial professional is not able to explain product features in a way you can understand them, dont use that advisor or agent. I dont care how nice of a guy or girl they are. If they cant effectively educate you on the features and how it works, RUN. Unfortunately, having an insurance license is all you need to sell an annuity, and you dont know jack about annuities after getting your insurance license. There are way too many agents selling them that dont know the basics of the product. jmho

 

[Julieolo]

I talked to John Olsen this morning. Wish I would have talked to him yesterday, I would have slept better. Could not seem to shut my brain off last night

He has confirmed that I should NOT have to pay a 10% penalty fee on any principle on this account and I have just been receiving bad advice from the financial adviser and his compliance manager. He said this is plain and simple. He referred to the 72(q) tax code.

So I should be ok in changing my monthly withdraw to the 15% I am allowed with out giving the IRS thousands of dollars.

I had a thought after I got off the phone with John Olsen. I received a flat $400 each month for 4 months during the tax year of 2016. The interest I am receiving is a little less than the $400, so I thought if I looked at my taxes from last year (have not done this year yet) I should be able to determine the Gross distribution and the Taxable amount and compare these numbers to the 10% penalty fees that I had to pay.

From the 1099r
Gross Distribution $1.,600
Taxable amount $1,553.60

From form 5329
Additional tax. Enter 10% (0.10) of line 3 = $155

Math has never been my favorite subject but if everything I withdraw is subject to a 10% penalty charge, that Additional tax line would say $160 correct? But than again, I think it should say $154. I guess they rounded up on the Taxable Amount from the 1099r and maybe rounded up again from the Additional tax on the 5329 Form?

I am going to take one more step before I make any changes. I have a referral for a CPA that everyone seems to like and trust. I am feeling pretty comfortable about this right now after talking to John Olsen but would like to hear it one more time from a CPA.

I appreciate every ones input on this thread very much, thank you. I have learned a lot. I purchased John Olsen's book and will start my education on thoroughly understanding this annuity by reading as much as I can. I wish I had done my homework in the first place but at the time my mother (who I was very close to) had just died tragically and unexpectedly and I was in a really bad place. This is actually where the money came from. I have learned so much from this experience and I will try to be thankful for that.

If the CPA says otherwise than I will be putting together my complaint letters right away. I will keep you all posted as I make progress on this.

 

[VolAgent]

@Julieolo there are rules about computing the tax and rounding. Some taxes have pre-calculated taxes based upon the taxable amount. For those that don't, I believe you round to the nearest whole dollar.

 

[DHK]

Let's not forget that if you were receiving $400/month for 12 months, that would be $4,800 distributed and (for this, assume 100% of it is taxable), that would mean a $480 tax penalty.

Perhaps the actual amount is small and not a big deal... but you still received improper and/or incomplete advice from your advisor.