You will pay several charges when you invest in a variable annuity. Be sure you understand all charges before you invest. Besides surrender charges, there are a number of other charges, including:
- Mortality and expense risk charge. This charge is equal to a certain percentage of your account value, typically about 1.25% per year. This charge pays the issuer for the insurance risk it assumes under the annuity contract. The profit from this charge sometimes is used to pay a commission to the person who sold you the annuity.
- Administrative fees. The issuer may charge you for record keeping and other administrative expenses. This may be a flat annual fee, or a percentage of your account value.
- Underlying fund expenses. In addition to fees charged by the issuer, you will pay the fees and expenses for underlying mutual fund investments.
- Fees and charges for other features. Additional fees typically apply for special features, such as a guaranteed minimum income benefit or long-term care insurance. Initial sales loads, fees for transferring part of your account from one investment option to another, and other fees also may apply.
- If you withdraw money from an annuity before you are age 59 ½, you may have to pay a 10% tax penalty to the Internal Revenue Service on top of any taxes you owe on the income. This additional tax applies only to the portion of the distribution that is included in the taxpayer's gross income and does not apply to any part of the distribution that might be considered tax-free, such as amounts rolled over into other qualifying plans.
