Also, don't use an annuity for short-term money needs. There's a lot to consider when buying an annuity. There are many types of annuities and payout plans . In addition, earnings grow tax-deferred until you begin taking payments. However, if you make an annuity part of your IRA portfolio it will be subject to the same regulations governing retirement accounts.
Variable annuities are essentially mutual funds with an insurance policy.
Some give you the option, for a fee, to limit potential losses by guaranteeing at least a portion of your principal and interest. A drawback is the gains in an annuity are taxed as ordinary income while mutual fund gains are taxed at the usually much lower rate of capital gains. In addition, an annuity leaves your heirs with the tax bill, while a mutual fund that's inherited is granted a stepped-up cost basis so your heirs will pay taxes only on gains that occur during their ownership. Make sure your agent shows exactly what your policy will cost. Fees for variable annuities are listed in the prospectus.