Fixed and variable annuities can certainly have surrender fees like EIAs, and many do. The issue isn’t about the capital gains rate, it’s about liquidity and fees. Although there are exceptions, most annuities are not as liquid as other investment options offering the same yields due to surrender fees and management fees. This article succinctly outlines the problems with various annuity products.

Beyond this, the real issue is about salespeople misleading or lying to people who for whatever reason don’t know better.

Annuities can be decent financial products for some people, but one can only be sure if it is the right product when they are fully and truthfully explained, not pushed to the customer to earn a high commission.

A variable annuity offers guaranteed living benefits and work for income distribution planning. VA’s offer a predictable and consistent income stream without annuitization. I know everyone jumps on the 15% cap gains treatment, but get real most distributions from mutual funds are short-term gains and taxable at ordinary income rates, not the 15%. Plus, if you lose money the tax treament means nothing as your income goes down the tubes.

No, I do not sell VA products, but I know a lot about them. The Dateline story, although accurate for certain products, was slanted to condemn the whole industry for a few peoples greed.

Personally, I think annuities are extremely limited in their usefulness. The only parties guaranteed to make money with annuities is the salesman and the insurance company. The costs are excessive, investment selections usually stink, and the tax benefits are overrated considering you get a 15% cap gains rate.

What most folks don’t realize is annuities pay the highest commissions. The load on a mutual fund is capped at 5.75%, but annuities, especially equity income annuities which were the focus of the Dateline piece, offer brokers up to 13% commission. Guess what your broker is going to recommend you buy if they had a choice between 5.75% and 13%.