Ask TheStreet
Ask TheStreet: Annuity Analysis
09/20/06 - 09:59 AM EDT
So all those fees will defeat the point of the tax deferral on your earnings, unless you open them at a younger age. And another downer: You owe ordinary income tax, which could be as high as 35%, on your annuity withdrawals. If, instead, you had your money in mutual funds, you'd only owe the 15% capital gains tax on the earnings. One more big bummer: Annuities are in many ways the worse thing to leave to your heirs because there's no "step-up in basis." That means, for tax purposes, your heirs will owe ordinary income tax on the annuity's value from the day you opened the account. So if you opened an annuity fund for $100 and it's worth $1,000 when you die, they'll owe tax on all the growth, or the $900. With a regular mutual fund, your heirs will get the step-up in basis and won't owe a dime. Instead, they'll have a $1,000 mutual fund investment in their portfolio. So annuities may not be the right choice for you at this time. "We have mixed feelings about them. We like the tax deferral, but are concerned about the loss of capital gains and dividend tax rates," says Bill Fleming, director of personal financial services at PricewaterhouseCoopers in Hartford, Conn. Granted, there are some low-fee annuities out there from Vanguard, Schwab
An old saying makes sense in several ways.
Knowing how to use them could boost your returns. But make sure you do your homework, as risks abound.
From tulips to Google: Dutch auctions help IPO investors receive equal treatment.
Yahoo! is among the most searched stocks on TheStreet.com. Here's what Cramer had to say about the stock recently.
Catch up on his thinking on the hottest topics of the past week.
Investors will have to deal with a Fed meeting and another flood of earnings and economic data.
Ensco International and Echelon have the potential to move higher in coming days.
See who made what calls.
The addition of video is helping telecom companies compete against cable and satellite companies.
The June West Texas Intermediate contract reflects selling pressure ahead of Tuesday's expiration. But stocks in the sector are generally trading higher.
See who made what calls.
Keep on top of the market and the critical information you need to make more profitable investing decisions.
Sponsored by:

ACCESS REALMONEY

