How Are Annuities Taxed
July 25th, 2009
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Question: What are the advantages/disadvantages of tax-deferred annuities?
Are they good for long term investment?
Answer: In my (and many others) opinion, Tax-deferred annuities do NOT make sense even if you have money left over after maximizing contributions all tax deferred or tax free investments you are eligible for [401(k), Roth IRA, IRA, etc.]. Their costs are very high, they are not liquid, and when you do take out your profits, your capital gains are taxed at the higher income rates, not at the current low capital gains rates.
There are many mutual funds that are managed to be tax efficient and they have much less in fees.
Advantages: If you can't sleep at night without some type of "guarantee" not to lose your principal, then the annuities that offer a "guarantee" maybe better for you than a treasury bond. Just make sure the insurance company backing up the guarantee is a rich one. Make sure they do business in New York State, the state with the toughest insurance company regulations.
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Buy variable annuity carefully
Investors should not choose a variable annuity before doing a little homework.
EH - Financial Planning: Annuities : How a Tax-sheltered Annuity Plan Works
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Tags: annuities, how are annuities taxed at death, money, personal_finance, retirement