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A variable annuity inside of an IRA is usually not a good move. But there are a few ways to get out.

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Question: On the recommendation of my financial adviser, I recently moved my 401(k) into a variable annuity within an IRA rollover account. I now know that this was not a great move. But I’m not sure how to get the money out of the annuity, nor do I know what doing so will cost me. What should I do? —Gregory P.

Answer: When it comes to financial products that are sold via dubious sales pitches, annuities rank right up there at the top of the list.

You’ve got one group of salespeople out there pushing all manner of questionable annuities to seniors at free lunch seminars, a tactic I’ve warned about for years and that the people at Dateline NBC recently covered in a hidden-camera investigation.

And then there are advisers trying to convince people like you that instead of simply moving your 401(k) funds into an IRA account funded with mutual funds or ETFs, you’re better off putting your 401(k) money into an IRA rollover and investing the funds in a variable annuity.

That’s not to say that an annuity can’t be a reasonable investment for IRA rollover money. For example, I’ve long suggested that a plain old immediate annuity – a.k.a an income or payout annuity - can be a reasonable choice when you’re retired or on the verge of retirement and you want to assure that you’ll have income for the rest of your life. At that point, depending on your situation, it can make sense to invest a portion of your 401(k) or IRA stash in this type of annuity that’s still held inside an IRA account.

But many advisers these days want to get your IRA rollover money into an annuity well before you need regular income. On the face of it, though, that makes little sense. True, investment gains aren’t taxed as long as they remain inside the annuity. But money within an IRA is already sheltered from taxes, so you don’t need the tax-deferral benefit of an annuity when you’re dealing with IRA funds.

So instead advisers typically make the case for holding a variable annuity within an IRA by touting a variety of riders and special features, including the GMIB (guaranteed minimum income benefit) or the GMWB (guaranteed minimum withdrawal benefit). But as I’ve noted before, annuities that include the GMIB or GMWB feature have several drawbacks, including poorly disclosed annual fees that often top 2% a year. That sort of expense drag can limit the growth of your nest egg during your career and impair its ability to generate retirement income that will stand up to inflation over the long term.

Which brings us back to your situation: How do you get your IRA money out of the annuity?

Since the annuity is in an IRA account, you should be able to move your money without triggering any taxes by doing a trustee-to-trustee transfer to a new IRA rollover account. You could then invest in something other than an annuity.

But there’s a hitch. Nearly all annuities have surrender charges. These charges usually start at 7% to 10% a year and gradually decline until they disappear in eight to 10 years, although they can be higher and last longer. (In the case of a variable annuity, these charges are spelled out in the prospectus. In other annuities, you can check the contract.)

You may be able to sidestep these charges by invoking the annuity’s “free look” period - that is, a specific time during which you can return the annuity, typically for its contract value or your original contribution. Unfortunately, that period is usually only 10 days, although it can be longer in some states. (To see how long you have in your state, ask your state insurance department.)

If the free-look has expired, there may be another way for you to transfer at least some of your money into another IRA account without incurring onerous surrender fees. Most annuities allow you to withdrawal a certain amount each year (usually 10% of your account value) without paying surrender charges. The specifics are spelled out in the prospectus or contract.

So by taking advantage of this “surrender free” option, you can at least start moving some of your money out of the annuity into another IRA account and then transfer the remainder when the surrender charges have disappeared or at least dropped to a less burdensome level.

Of course, you could also go back to the adviser who sold you the annuity, explain why you think it was inappropriate and simply ask him or her to reverse the transaction without penalty. I doubt that this will work, but it can’t hurt to try.

If you really feel that you were duped or misled in some way, then I definitely think you should complain to the regulators who oversee annuities and annuity sales. That would be the Securities and Exchange Commission, FINRA, your state securities regulator and your state insurance department.

Even if doing this doesn’t help you, your grievance along with the complaints of others might lead to tougher oversight of annuity sales so that fewer people will find themselves in your position in the future.

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