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Oct 3, 2021 by |

San Mateo County Annuities And Financial Elder Abuse Attorney: Disadvantages And Taxation Of Deferred Annuities


Understanding The Disadvantages Of Annuities

Tax Consequences

Withdrawal Penalties And Taxation

Evans Law Firm, Inc. recommends against deferred annuities for older consumers.  In the firm’s practice we have seen older consumers lose money as the result of high sales commissions, annual fees and rider fees; returns on premiums that are considerably lower than advertised; and, penalties incurred on withdrawals.  Annuity surrenders also have tax consequences and while we do not provide tax advice, we have seen older consumers faced with large tax bills upon a surrender of a contract. If you are over 60, and live in San Mateo County or elsewhere in the Bay Area or anywhere in California and have experienced an economic loss as a result of the sale of an unsuitable annuity or other investment product, including a fixed indexed annuity, call us today at 415-441-8669 (or toll free at 1-888-50EVANS) for a free review of your policy. 

Understanding the Disadvantages of an Annuity

Perhaps the primary disadvantage of annuities is that they are illiquid investments, meaning withdrawals are costly. Annuity contracts terminated during their surrender period subject the holder to penalties as high as 15% and additional fees charged against the withdrawn funds. Even if you do not surrender your annuity, you will continue to incur annual fees on your contract including administrative fees.   Thus, annuities are more expensive than stocks or bonds. Annuities are insurance products and insurance comes at a cost, which can lower investment returns. An annuity’s underlying investments — also called subaccounts — often have higher fees than individual mutual funds.  Any “riders” an agent sells to augment your policy (like death benefits or income benefits) will also mean an annual fee of 1-1 ½ %.  Finally, unlike CDs and other bank deposits, annuities are not insured investments so that the income payout is only as good as the carrier’s word.

Understanding Annuities and Taxes: Mistakes People Make

If you’re not careful, there are a couple of costly disadvantages that are associated with taxes. Distributions paid out from the annuity are taxed at ordinary income tax rates, not capital gains rates. This is true even if the assets inside the annuity are mutual fund subaccounts and would have otherwise been subject to capital gains treatment.  If you surrender a contract in whole or in part the amount you receive (after the carrier exacts a surrender penalty) will be subject to tax, again at ordinary rates.  An exchange may also be taxable in the full amount of the surrendered policy unless the exchange qualifies for a tax-free exchange.  We have seen advisors structure exchanges improperly so that the tax-free advantage is lost.  Finally, if you withdraw money from your annuity prior to age 59½, expect a 10% IRS penalty on the interest earnings you’ve withdrawn. You’ll also have to add in the ordinary income tax on the amount as well.

Contact Us

If you are over 60 and live in San Mateo County, San Francisco or elsewhere in the Bay Area or throughout California and have lost money on a deferred annuity or indexed universal life insurance contact Ingrid M. Evans at Evans Law Firm, Inc. at (415) 441-8669, or by email at <a href=””></a>. Ingrid will pursue all remedies available to you against all parties responsible, including restitution (getting your money back), extra damages (to punish the fraudulent conduct) and awards of attorneys’ fees and costs to the senior forced to bring an action against the wrongdoers. 

Some significant issuers and distributors of fixed, variable and fixed indexed deferred annuities in California are listed below.  We are not in any way suggesting that any of these carriers or distributors has done anything wrong.  The list is provided solely as a reference for our readers.

AIG/American General Life Insurance Company

Allianz Life Insurance Company of North America

American Equity Investment Life Insurance Company

American General Life Insurance Company/AIG

American International Group, Inc. (AIG)

American National Life Insurance Company

Athene Annuity & Life Assurance Company

Athene Annuity and Life Company

Athene USA

Aviva Life Insurance Company

AXA Equitable Financial Services, LLC

AXA Equitable Life Insurance Company/AXA US

AXA Advisors, LLC

Brighthouse Financial, Inc./MetLife

EquiTrust Life Insurance Company

Fidelity & Guaranty Life Insurance Company

Genworth Financial, Inc.

Genworth Life and Annuity Insurance Company

Genworth Life Insurance Company

Guggenheim Partners, LLC

Guggenheim Partners/Security Benefit Life Insurance Company

ING USA Annuity and Life Insurance Company

Jackson National Life Insurance Company

John Hancock Life Insurance Company

Lincoln Benefit Life Company

Lincoln Financial Group

Massachusetts Mutual Life Insurance Company

Metlife/Metropolitan Life Insurance Company/Brighthouse Financial, Inc.

Minnesota Life Insurance Company

Nationwide Investor Services Corporation (NISC)

Nationwide Life and Annuity Insurance Company

Nationwide Life Insurance Company

New York Life Insurance Company

Northwestern Mutual Investment Services, LLC

Northwestern Mutual Life Insurance Company

Northwestern Mutual Wealth Management Company

Pacific Life & Annuity Company

Pacific Life Insurance Company


Security Benefit Corporation

Security Benefit Group, Inc.

Security Benefit Life Insurance Company/Guggenheim Partners

Security Investors, LLC

Security of Denver Life Insurance Company/Voya

Transamerica Life Insurance Company

Voya Financial Advisors

Voya/Reliastar Life Insurance Company

World Financial Group Insurance Agency, Inc.

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