Single-premium variable annuities are included in the equity or stock portion of the portfolio. A fixed annuity is usually purchased because of the desire for tax-deferred income and safety. A fixed annuity is rather like a certificate of deposit, except the money is deposited with an insurance company. Be aware, however, that fixed annuities do not enjoy the benefit of FDIC insurance or other forms of federal government backing. That is why it is important to have your financial advisor evaluate the insurance company's financial position and understand its ratings.
Variable annuities are essentially tax-deferred mutual funds.
Most of the same investment companies that manage the most popular mutual funds also manage the funds within variable annuities. From a tax standpoint, the important distinction between annuities and CDs or mutual funds is that the earnings from CDs and mutual funds are currently taxable, whether or not you withdraw those earnings. In contrast, the earnings from fixed or variable annuities are not subject to taxation until they are withdrawn. This difference can create a significant advantage for investors in annuities, since earnings that are tax-deferred grow faster than those that are currently taxable. Stated differently, you should strive to pay taxes on what you spend, not on everything you earn.