Annuities might have looked like an ideal retirement vehicle at one time, but the⛎y have have lost some of their glow. There are several reasons for this, incಞluding:

• Market performance
• The fine print on returns
• Hidden costs
  

With annuities, you should be wary of the fees buried in the fine print. Discover the true cost of 🌳an annuity here.

Annuity Fees

Here are a few o🥃f the fees that can be buried deep within an annuity contract—or not shown at all:

• Commission: An annuity is basically 澳洲幸运5官方开奖结果体彩网:insurance, so some salesperson gets a cut of your return or principal for selling you the policy.
• Underwriting: These fees go to those who take actuarial risk on the benefits.
• Fund management: If the annuity invests in a mutual fund, as most do, the 澳洲幸运5官方开奖结果体彩网:management fees are passed onto you.
• Penalties: If you are under age 59½ and need to make withdrawals, the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) gets 10% and the contract writer nets a surrender charge between 5% and 10%. Keep in mind that this charge often drops the longer you hold the annuity. Other contract writers have declining surrender fees at a lower percentage and allowances for 5% to 15% emergency withdrawals without penalties.
• Tax opportunity cost: 澳洲幸运5官方开奖结果体彩网:After-tax dollars that you invest in an annuity grow tax-deferred. However, the benefits cannot compete with putting pre-tax dollars into your 401(k). Annuities should begin only where your 401(k) ends, once you’ve maxed out on contributions. This is even more true if your employer is 澳洲幸运5官方开奖结果体彩网:matching contributions.
• Taxes on beneficiaries: If you leave your mutual fund to your kids, the IRS allows them to take advantage of a 澳洲幸运5官方开奖结果体彩网:step-up valuation, or the market price of the securities at the time of transfer. This doesn’t work with annuities, so your 澳洲幸运5官方开奖结果体彩网:beneficiaries are likely to be charged taxes at the gain from your original purchase price.

Reasons to Invest in Annuities

After all the downs꧅ides and hidden costs, there ar🗹e still a few upsides:

• No heavy record-keeping requirements
• Deferred taxes on your growing money
• Tax-free transfers between annuity companies
• No investment limits
• Can invest in annuities via 401(k)s thanks to the SECURE Act

The Bottom Line

After considering all the pros and cons, it’s important to remember that your entire investment in an annuity—or much of💜 it—can be lost if the company behind the contract isn’t sound.

There are some state protections for some annuity funds, but they are limited, so make sure you do your research. You can buy annuities below your state's protection limit from several companies instead of buying one larger annuity from a single company. But if you move from a state with a high limit to one with a lower limit, your new state's level will generally apply should the annuity fail after you move.