Many tax-deferred variable annuities come with surrender charges. That is, if you want to bail out of your investment within the first year, you might have to pay a 7 percent penalty. That penalty may gradually decline and disappear after seven years.
Thus, if you bought a variable annuity a few years ago, surrender charges might not be a major issue now. Under Section 1035 of the tax code, you can exchange one annuity for another without paying income tax.
Recently, some variable annuities have begun to reduce their annual costs. In addition, many variable annuities now offer attractive guarantees that provide protection against investment losses. For these reasons, it might pay for you to exchange an existing variable annuity for one that offers lower costs or more attractive features. Among the firms known for low-cost annuities are Schwab, Vanguard, and TIAA-CREF.
