- Insurance companies sell annuities, as do some banks, brokerage firms, and mutual fund companies. Make sure you read and understand your annuity contract. All fees should be clearly stated in the contract. Your most important source of information about investment options within a variable annuity is the mutual fund prospectus. Request prospectuses for all the mutual fund options you might want to select. Read the prospectuses carefully before you decide how to allocate your purchase payments among the investment options.
- Realize that if you are investing in a variable annuity through a tax-advantaged retirement plan, such as a 401(k) plan or an Individual Retirement Account, you will get no additional tax advantages from a variable annuity. In such cases, consider buying a variable annuity only if it makes sense because of the annuity’s other features.
- Note that if you sell or withdraw money from a variable annuity too soon after your purchase, the insurance company will impose a “surrender charge.” This is a type of sales charge that applies in the "surrender period," typically six to eight years after you buy the annuity. Surrender charges will reduce the value of -- and the return on -- your investment.
