Annuities can be an important part of a comprehensive financial plan for the purpose of tax-deferred growth. However, a comprehensive financial plan should start with retirement savings on a pre-tax or tax-free basis. Ask yourself these questions:

• Have you contributed the pre-tax maximum to company retirement plans?
• Has your spouse contributed the pre-tax maximum to company retirement plans?
• Are you participating in a Keogh or SEP, if available to you?
• Have you put money into a traditional or Roth IRA?
• Are you sure you won't need the money before age 59½?

If the answer to all of these questions is yes, then you may want to consider an annuity.

IMPORTANT NOTE: As an investment vehicle, annuities are primarily for individuals in higher tax brackets, such as a federal marginal income tax rate of 25% or higher. The tax-deferred savings are less beneficial at lower tax rates.

IMPORTANT NOTE: If you plan to put your retirement investments in growth stocks and they appreciate, you will recognize capital gains when you sell them in the future. Assuming you are in the middle tax bracket and the investments are held for more than one year, these capital gains will be taxed at the preferential income tax rate of 15%. But if these assets are within an annuity, all of your investment profits are taxed as ordinary income upon withdrawal. If you hold an annuity until you retire, however, you may be in a lower tax bracket and the capital gain vs. ordinary income tax differences may be minimized.

For others who have maximized other forms of pre-tax or tax-free retirement savings, such as traditional or Roth IRAs, an annuity offers another way to save on a tax-deferred basis.

Unlike IRAs and qualified plans, there are no limits on the amount that can be invested in annuities (unless they are qualified annuities, such as individual retirement annuities).

Annuities come in two basic types - fixed annuities that offer investors a fixed return for certain periods, and variable annuities, which allow contract holders to allocate their money among a variety of subaccounts. You can also set up an individual retirement annuity, which provides for retirement saving on a tax-deferred basis. Before setting up an annuity, make sure you understand the fees. When selecting an annuity, conduct a careful evaluation of the annuity and the insurance company that stands behind it.