The real question is to be taxed now or to be taxed later? I choose later but in some circumstances now is better. Tax free is always better than taxable so choosing between two taxable investments is a little difficult but sometimes necessary.
Which is better - a taxable mutual fund or a tax deferred variable annuity? There are so many angles to go at this question it would take a 10,000 word essay just to cover all of the points. From an estate planning point view to just straight performance the answer to the question becomes an enormous debate.
For example, mutual funds perform better than variable annuities. Or do they? Consider that the subaccounts the variable annuity may be much smaller in total asset value and be able to move in and out of stocks in a more nimble fashion thereby cashing in on the ups and cashing out on the down markets much faster than a larger fund. But...
Tax deferral is a good deal or is it? It is and isn't. Consider the fact that you will pay taxes at earned income upon withdrawal of your money versus capital gains each year with the fund. If you never need the money then paying taxes each year is overkill however in the annuity the tax consequences to your heir could be much higher. And...
There are at least 100 arguments one way or the other. The key is to fine tune what you need the investment to do and then pick the one that works best for you. For more read - Are Variable Annuities Better Than Mutual Funds?
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