Thumbs Down: Drawbacks to Your VA

Physician's Money Digest, March31 2004, Volume 11, Issue 6

Variable annuities may have sometempting features, like a guaranteethat you or your heirs will neverreceive less than the amount you putin initially, no matter how badly theVA's underlying investments do. Thegoodies come at a price, however. Theexpense ratio for the average VA runs2.28%, significantly higher than withthe average mutual fund expense ratioof 1.5%, and almost 13 times higherthan the 0.18% expense ratio for theVanguard S&P 500 Index fund. In addition,money you eventually take out ofyour VA will be taxed as ordinaryincome, which means that you'll giveUncle Sam up to 35% of your withdrawal.In comparison, you'd pay amaximum tax rate of 15% on any long-termcapital gains if you put yourmoney into a taxable mutual fund.