Variable Annuity Vs Roth IRA Vs 401K. Pros & Cons of Investment Plans

Question

I'm trying to understand the pros and cons of Variable Annuity products like Mass Mutual Transitions Select.

I worked for a few employers for a short term like 1 to 2 years and had 401K with them. That was 10 years ago. A friend suggested me Mass Mutual and rolled over the 401K to Mass Mutual Transitions Select 10 years ago.

The Portfolios are:

1. MML Balanced Allocation
2. MML Agressive Allocation
3. MML American Funds Core Allocation
4. MML American Funds International
5. MML Balanced Allocation
6. MML Blue Chip Growth
7. MML Growth Allocation
8. MML International Equity

My current employer works with Fidelity Investments and have 401K with them. The investment section says TRP RETIRE 2035 ADV (PARKX) and the rate of return is 15%. I also have Roth IRA with Fidelity and it says Fidelity Freedom 2030. The % of growth for Roth IRA is 50%.

Looking at (1) Mass Mutual Trasitions Select Annuity (2) Roth IRA and (3) 401K, I don't think the Annuity is performing well.

In the last 10 years, my situation has changed. I have two kids who will be going to college in the next 10 years and I will be retiring around the same time too.

1. What is the disadvantage and advantage with Variable Annuity? Should I convert them to some ETFs managed by Investment Firms like Fidelity to increase my saving for Retirement?
2. Will the money in my Variable Annuity be transferred to my wife or kids after I pass away?

Answer 1

A variable annuity is a contract with an insurance company that invests your money in mutual funds. The annuity will provide payments to you either immediately or at a future date, for the rest of your life, guaranteeing that you won't outlive your assets.

The death benefit guarantees that your beneficiary will receive at least the amount of your purchase payments (minimum guarantee), even if you have been receiving payments for many years. In some cases, it will be the full value of your investment, less payments received (a higher amount than the minimum guarantee).

Variable annuity growth is tax-deferred and can be transferred tax free to other annuities. A drawback is that withdrawals are taxed as ordinary income.

In return for these guarantees, you'll pay for each benefit provided by the annuity. In most cases, variable annuity performance will lag market performance. That's the trade off you make for the guaranteed income and guaranteed death benefit.

Here are two other answers with additional information.