$20,000 Lost To The IRS In Two Minutes

A Phone Call From Her Broker, An Uninformed Decision, And A $20,000 Tax Bill

                                                    by: Brendan Magee

Sue called me up in a bit of a panic. She is a long time friend of the family and needed someone to confide in.  She just found out she had made a decision earlier in the week that was going to cost her big time. She received a phone call from her broker asking her if she wanted to surrender her annuity accounts. She had the accounts for a while and was ready for something different so she said yes she was ready to surrender her annuities. Her broker, whom she was with for the past five years, said he would move the money from those accounts to mutual funds.

In a follow up conversation with her accountant she found out the ramifications of that decision, a decision, she didn't fully understand. When she surrendered the annuities, that was a taxable event. Every dollar that was coming out of her annuities was going to count as income for 2014. She and her, since passed away husband, had been saving in those accounts for years and had built up a sizeable nest egg. Not only was the money coming out of her annuities going to be taxable, but also since she was substantially increasing her taxable income for 2014, 85% of her Social Security Income benefits would now be taxed. For Sue, it was like having a two ton safe fall out of the sky and land right on top of her head. She couldn't understand how all this bad stuff was happening to her.

The first mistake Sue made was was assuming her broker had her best interests at heart. His agenda was to serve his needs, not Sue's. To not take the time and sit down with Sue and help her fully understand the ramifications of closing out her annuities is criminal in my opinion. To callously say he was moving her money into funds where he gets a nice commission after Sue has to needlessly shell out $20,000 in taxes is completely unforgiveable. Her broker is not an advisor at all. He was and is a salesman serving his agenda only.

The second mistake Sue made was to be completely disengaged from decisions involving her financial security. You don't have conversations about medications you will take or discontinue taking over the phone. You sit in the doctor's office, get examined, discuss how you are feeling, talk about side effects of medications, and set up protocols for what to do if an emergency occurs. Nothing is left to chance. For Sue to allow her broker to talk her into a decision involving hundreds of thousands of dollars over the phone is asking for trouble.

Sue should have insisted on a face to face meeting, perhaps involving her accountant and the broker so that she would have all her bases covered before making a decision. Frankly, Sue needed someone to point out what she couldn't see. She needed someone to point out her blind spots.  She didn't and now has to deal with a lot of  needless expense and anxiety.

What every investor has to ask themselves before making an investment decision is this, what is it that I am not seeing here? Be humble enough to realize that your perspective can be flawed. The biggest problems, the ones that do the most damage don't come from what you can see. They come from what you can't see. Just ask Sue.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions or comments call 610-446-4322 or e-mail Brendan@coachgee.com.