Besides how withdrawals are taxed, there is a significant difference in fees. For instance Vanguard Total Stock Market Mutual fund return minus expense for the last 12 months was 25.21%, similar fund offered in a Vanguard Variable Annuity (VVA-Ttl Stock Market Idx) was 24.64%. Note the expense ratio for the Mutual Fund (Admiral Shares) is .04%. So you are being charged about .57% every year to have these funds inside the Variable Annuity. Those fees add up quickly, do your own analysis to see if an after tax account would make more sense in the long run. In summary for me, it makes more sense to hold the funds outside of an annuity, as I do not plan or need to annuitize the funds in the future. Almost forgot, if the funds are held outside the annuity, if held long enough they are long term capital gains and thus a lower tax rate. Annuity is at ordinary income and losses can not be used to offset gains.
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