On Second Glance, Variable Annuities Don't Look So Bad

The third rail of financial investments is the tax-deferred variable annuity. No, you won't die if you touch it, but you may be considered dumb.

These annuities are created by life insurance companies. They allow you to invest after-tax dollars in so-called subaccounts, which are similar to mutual funds and are managed by well-known companies like Janus, Fidelity, Vanguard and Putnam. Your money in these subaccounts grows tax-deferred. In other words, you don't pay taxes until you take the money out.

Most of what is written on variable annuities is very negative. The rap on them is that they are expensive and the tax benefits are less than they seem. But I've seen some new research that has led me to reassess my own negative opinion. ...