Variable Annuities: Bad Idea?

Music

>> A variable annuity is a tax deferred retirement savings product offered by an insurance company.

Music

>> Variable annuities allow you to purchase investments inside an insurance contract. Variable annuities are similar to 401ks and IRAs in that early withdrawals before age 59 1/2 are subject to income tax and a 10% penalty. Also like retirement plans earnings grow tax deferred. But when you withdraw the money after 59 1/2 any amount over the initial investment whether it comes from appreciation, interest or dividends is taxed at your income tax bracket at the time of withdrawal. While many tout variable annuities as a way to save for retirement they're notorious for high fees. According to Morning Star, the average annual expense on variable annuities is almost double that of mutual funds and variable annuities can lock up your money for several years. Surrender fees start at 9% if you withdraw money during your first year of ownership. With all the negatives attached background music to variable annuities your best bet for retirement is to max out your current employer sponsored retirement plan. If you're lucky enough to have extra money to invest after that stick to no load mutual funds.

Music

==== Transcribed by Automatic Sync Technologies ====