Annuity pros & cons

Many investment experts are divided on the subject of annuities. Some praise their unique benefits, but others identify drawbacks that make them less suitable for certain investors.

For example, some people believe that choosing an annuity within an individual retirement account (IRA) makes little sense because tax-deferred earnings are already provided by the IRA.

Here’s a summary of other elements in the debate about nonqualified annuities.

Pros	Cons

Option of guaranteed lifetime income	Fixed annuity income vulnerable to inflation and variable income unpredictable

Tax-deferred growth and no federal withdrawal requirements	Earnings taxed at regular rate on withdrawal

Guaranteed death benefit on variable contracts	Variable contracts often have higher fees than comparable savings plans

No annual contribution limit	Variable contract investment choices are limited and may not be top drawer

Money from any source may be used to pay premiums	Commissions may be higher than on other retirement savings plans

Multiple alternatives for taking income	Surrender charges imposed on early withdrawals in addition to taxes and federal penalty

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