Are variable annuities good investments?
On One Hand: They Offer Tax-Deferred Growth.Annuities allow money to grow tax-free until retirement at which point you can withdraw the money and have it be treated as ordinary income and there are no limits on how much you can contribute each year, unlike an IRA or 401k. In addition, the variable annuities offer a death benefit that guarantees the value of your annuity in case you die.On the Other: Careful for Account Restrictions.If you are not investing for retirement, variable annuities are a poor choice because you cannot take out the money before age 59 1/2 without paying stiff penalties. In addition, the money is treated as ordinary income, which has higher tax rates, rather than capital gains income.Bottom LineFor most people, the death benefit does not outweigh the restrictions on withdrawals and higher tax rates. In addition, according to the SmartMoney website, variable annuities charge very high fees compared to other investment options such as mutual funds.
