Search This Blog

Sunday, March 6, 2011

Should I invest in an annuity?

I hate getting asked this question. The reason why is usually someone has been speaking to the family insurance person. These products get pushed so hard by the insurance industry and they are a completely flawed product. the only person annuities benefit are, you guessed it, the insurance industry. Let's go over why these are wrong for you:


1.   Commissions: You will be paying a hefty commission to the agents. This may upwards to 12%. Now you know why they push these so hard.

2.   Surrender Fee: So you get suckered by a smooth talking salesperson and you want out.  Not so fast, you will have to pay a fee to close the annuity.

3.   Early Withdrawal Penalty: If you are younger than 59 1/2 and want to make a withdrawal you will have to pay a 10% penalty.

4    Loads:  You will have to pay a load to invest in their mutual funds.

5.   Taxes: Gains on your investments are taxed as ordinary income which is higher than capital gains rates

6.   Estate Planninghere's no getting around the income tax due on annuities. In fact, if you die with money remaining in your annuity, your beneficiary will inherit all the taxes that you have deferred. Compare this to a mutual fund or ETF, whose basis is stepped-up at death. In that case, your beneficiary would owe no taxes on the gains. Both types of accounts — annuities and mutual funds — are liable for federal estate taxes on anything over the federal estate tax exemption.


Do yourself a favor and next time a salesperson recommends an annuity, RUN!!!!  


No comments:

Post a Comment