Tax-Sheltered Annuties Good?

There is a difference in annuities and mutual funds. Do you know what they are?

QUESTION: Christy is investing into a tax-sheltered annuity.  Should she switch to mutual funds or stay with the annuity?

ANSWER: You should switch to mutual funds.  An annuity is simply a savings account with an insurance company.  You can get variable annuities, but there’s no point in doing that inside a retirement plan.  A variable annuity is just a mutual fund covered by an annuity for tax purposes, but you’re paying an extra fee to get that. 

The bottom line is that you should always go straight to good growth stock mutual funds for your retirement.  The only time that you may use a variable annuity is when you’ve maxed out all other retirement savings and your house is paid for.

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