Thumbs Down: Getting Out of Annuities

Many investors, lured by theprospect of tax-free growth,are roped into expensive variableannuities (VAs) by commission-hungrysales reps. What they often don'thear about are the drawbacks: youprobably have to pay a stiff surrenderfee to get at your money during thefirst 7 to 10 years of your investment,you'll pay taxes at ordinary ratesrather than at favorable long-termcapital gains rates when you takemoney out, and the VA's expenseratio can be as much as 2% or more,higher than a comparable mutualfund. If you're stuck in a VA and wantout, you can cash it in, but you'll paya 10% penalty on top of any incometaxes on earnings if you're under age59 1/2. Instead, you may want to switchto a lower-cost VA like one from Vanguard(www.vanguard.com) or TIAACREF(www.tiaa-cref.org) throughwhat's known as a 1035 exchange.