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Variable Annuities Are Problematic as Part of Retirement Plans

Recently, many companies have begun to offer variable annuities as subaccounts in their company retirement plans. Variable annuities are contracts between a purchaser and an insurance company.According to a July 2, 2010 article by Mel Lindauer on Forbes.com, this inclusion is problematic for two main reasons. First, many of the variable annuities placed inside retirement accounts are high-cost non-qualified variable annuities carrying substantial fees including surrender costs. Second, if the retirement account is already tax-deferred (as is the case with most), a variable annuity will not provide the investor with any additional tax benefits. "If you are investing in a variable annuity through a tax-advantaged retirement plan (such as a 401(k) plan or IRA), you will get no additional tax advantage from the variable annuity," warns the SEC on its website.Insurance industry representatives claim the benefits of variable annuities (including: periodic payments for life, death benefits, and tax-deferred income and investment gains) go above and beyond the benefits associated with traditional mutual fund accounts. However, only a very small percentage of variable annuities are ever "annuitized." Financial professionals selling variable annuities are obligated to advise investors of the suitability of the investment vehicle for the investors' particular investment goals. Selling an unsuitable product or failing to disclose all of the information about the product could render the brokerage firm or sales agent liable for damages.

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