Let him or her know that at age 65, it will be a source of income, say 10 percent a year of whatever the balance is, rather than millions of dollars to spend all at once. You've got to keep the money away from the tax man. Obviously, if you have to pay taxes on the investment earnings every year, you won't achieve 11 percent compound growth. An annuity is an insurance contract that bundles a collection of mutual funds inside a tax-deferred arrangement similar to an individual retirement account. But earnings within the account build up without any current tax liability.
Annuities usually entail sales commissions and early surrender penalties.
Be sure and study the fees and charges carefully before you invest. Income tax isn't your only I.R.S. pitfall. So be careful about how you complete the paperwork. You might want to consult an attorney specializing in estate planning, CPA or financial planner to make sure you get it right. Because Lisa is a minor she is the owner under the Uniform Gifts to Minors Act with Doll as her custodian.