- Home /
- Annuity Basics /
- Disadvantages of Annuities
Beware of the disadvantages for certain types of Annuities
As with any financial product or investment medium there are always pros and cons. It is important to understand that all annuities are not created equal and certain types of annuites are more advantagous than others. Investors must consider the drawbacks of certain types of annuities when considering an annuity purchase. An annuity expert can assist an investor in understanding these drawbacks and how they might apply to your unique financial situation and goals. Some of the drawbacks of annuities are as follows:
- Depending on the type of annuity you may face high surrender charges if you withdraw money early. Generally surrender chargers graduate to a lower percent each year that you are vested in the annuity.
- Make sure and do your homework if you are considering a variable annuity. Variable annuities can have high annual fees, including management, investment and rider fees. When added up these fees can diminish investment gains, as a result many annuity experts do not sell variable annuities
- Like other retirement accounts, such as 401(k), annuities have a 10% early withdrawal penalty imposed by the IRS if you withdraw before age 59 1/2.
- Distributed interest gains from annuities are taxed at regular income tax rates based on your tax bracket compared to other types of investments that are taxed at the capital gains rates. Depending on your unique situation this may be a drawback or in some cases a benefit.
