Generally they are not a great idea. Run away from variable annuities. They are basically mutual funds that can lose or gain value and can be converted into fixed annuities at retirement.
A fixed annuity would pay you a set percent of interest. It is insured but if too many annuity companies fail, it could lose value. Basically with this type of annuity you would be paying the company to manage money you put in and they give you a fixed amount. If they market goes up more than they guarantee you, they keep all the extra earnings. Plus they many have higher fees than mutual funds.
You also may not be able to get any cash out if you need it, or may have to pay a hefty surrender fee if you take money out before a certain amount of time in the plan.
If you do go with an annuity stick to the low cost providers like Fidelity, Vanguard or TIAA-CREF.
Also, with a 401k you would get a tax deduction. You lose this with the annuity, you just get tax deferral on the earnings and they are taxed at your marginal rate when the money is withdrawn.
If you invest money in a taxable mutual fund and held the fund for many years, the capital gains rate is generally lower than your marginal tax rate. Right now it would be 15% for long term capital gains.
Most people recommended doing the 401k up to the match, then max a Roth, then continue to max out the 401k and then consider annuities if you are in a very high tax bracket.
|