The Pitfalls of Annuities

This comes from today's Wall Street Journal in an article($) about how states are cracking down on annuity sales. They list three pitfalls to annuities:

• Long-term surrender charges that can cost 10% or more of the value of the contract.


• Unfavorable tax treatment, since profits in annuities are taxed at ordinary income rates.


• No step-up provision, meaning that when passed to heirs, gains are taxed, unlike some other investments.

According to the article, last month New Jersey began enforcing its new Senior Citizen Investment Protection Act, which limits how long annuity sellers can impose surrender charges. The article also lists what other states are doing:

Overall, I think this is a good thing.

Tag: Annuities