Low-Cost Variable Annuities

The estimable Less Antman: “People who are looking to invest in a variable annuity should know that TIAA-CREF, which is well known for its teacher’s retirement plans and extremely low costs, is now offering annuities that are available to anybody. Their Personal Annuity is available in most states and will undoubtedly be available in all of them relatively soon. Check out tiaa-cref.org. The minimum investment is only $25 per quarter!”

☞ Well, this is worth a look. TIAA-CREF has a lot to recommend it, even if variable annuities — no matter how low the costs — remain a way to translate what could otherwise be lightly-taxed long-term capital gains into more heavily taxed ordinary income at withdrawal. But while you’re looking, don’t miss the part of the prospectus that notes that the low costs are the product of “waivers.” Given TIAA-CREF’s good motivating principles, you would probably be OK. But the prospectus says: “Without the waivers, the maximum expense charges for Personal Annuity Select accounts would be: Stock Index Account, 1.50%; Growth Equity Account, 1.66%; Growth & Income Account, 1.64%; International Equity Account, 1.73%; Social Choice Account, 1.59%.” So the low cost is likely but not guaranteed.

Meanwhile, the low minimum investment is nice, but small savers might do better opening a Roth IRA. There, as with an annuity, the money you put in provides no tax break. But — unlike an annuity — the money you eventually withdraw is free of federal income tax.

Tomorrow: Steve Meyer’s Wheel of Misfortune