Waddell & Reed, Inc.

Annuities are a contract that provides an income for a stated period or for a person's lifetime, and are a popular tool for saving for retirement. Many investors choose to invest in an annuity because it is a contract between you and an insurance company, whereby you can either invest money periodically or in a lump sum, and in return, the insurance company guarantees income later when you decide to withdraw your money. Like other tax-deferred investments, earnings are not taxed until you withdraw the money. Early withdrawals are subject to surrender charges and, if made prior to age 59½, a 10% federal tax penalty. Guarantees and benefits are subject to the claims paying ability of the issuing insurance company.

Annuities are gnerally long-term financial vehicles designed for retirement purposes. Annuities commonly offer three main features: tax-deferred treatment of earnings, a death benefit prior to annuitization and guaranteed lifetime payment options.
Many investors who are close to retiring prefer a fixed annuity because it provides a guaranteed rate of return over a stated period of time. Variable annuities may appeal to investors who are willing to accept investment risk in exchange for higher potential growth. There is a higher degree of risk involved with variable annuities because unlike fixed annuities, there is no guaranteed rate of return and performance of the annuity is based on underlying investment portfolios (sub accounts) that are subject to market fluctuation including the possible loss of the principal amount invested.

If you are investing in a variable annuity through a tax-advantaged retirement plan such as an IRA, you will receive no additional tax advantage from the variable annuity. Under these circumstances, you should consider investing in a variable annuity only if it makes sense because of the annuity's other features.

As with any investment we suggest you consult with your attorney, or other trusted investsment advisor before making an investment decision.