Share this Page URL

Chapter 16. Tax-Sheltered Annuities > Where to Get the Good Deals - Pg. 164

Tax-Sheltered Annuities 164 Cons Expensive, with many hidden fees. Can't borrow against it like you may be able to with a 401(k). Behaves like any tax-deferred plan; 10 percent penalty if withdrawn before age 59½. Initial contributions are not deductible. Earnings are taxed as ordinary income upon withdrawal; you may be giving up the possibility of paying a lower capital gain tax on an investment outside an annuity. · If you need to get to your funds there may be a back-end surrender charge as high as 15 percent assessed by the company. · Heirs are taxed on the earnings, and there is not a stepped-up basis, like there is with a mutual fund. · There is no guarantee you will receive the full value of your contract if you choose to annuitize payments. · · · · · Warning!