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It always seems like such a good idea at the time. With no more exemptions for kids, with mortgage-interest deductions nearly gone, with late-career income rising, investors in their 50s discover the harsh bite of taxes.

Suddenly, income that was once taxed at 15 percent is taxed at 25 percent or more. The idea of tax deferral on money in taxable accounts starts to look really good. The salesperson is understanding and convincing.

Such people are typical variable-annuity buyers. Not kids. Not retirees. People in their 50s with savings in taxable accounts.

So they put money, sometimes a lot of money, into a variable annuity. Only later, sometimes years later, do they start to feel buyer’s remorse.

Disappointed by results, they begin to realize the insurance company has gained an assured and generous fee income. They, meanwhile, are holding the bag for risk, while the insurance company gets almost every dime of interest and dividend income their money earns — and sometimes more.

They start to look for a way out. Many feel totally trapped. And some may be.

But for others, escape is possible.

Some variable-annuity holders can escape at no cost.

Others may have to settle for escaping at a cost that can be recovered in a few years of fee savings.

There’s only one problem: No one ever hears about the escape from the salesperson that got him, or her, into the expensive product in the first place.

That salesperson, having made a sale once, is likely to return with a “new and better” product. It will be as expensive as the first, perhaps more so. It will be good for the salesperson because it will generate another commission.

But it will start the surrender penalty clock all over again for the variable-annuity owner who wants to escape.

What can you do?

It’s called a 1035 exchange. It is exactly what your salesperson uses to help you leave one expensive variable annuity for another expensive variable annuity.

Only this time you move to a much less-expensive variable annuity.

Whatever the surrender charge, it is likely to be beneficial to move to a low-cost variable annuity provider such as TIAA-CREF or Vanguard.

These two firms offer contracts with all-in costs of 0.5 percent to 0.6 percent for the combined cost of the investment funds being held and the insurance “wrapper” that provides tax deferral and the basic death-benefit guarantee.

So think about it. In the (nearly) worst case of an 8 percent surrender fee for a contract that has total costs of 2.6 percent, you’d recover the surrender fee in lower costs in about four years.

If the surrender fee is 4 percent, you’ll recover it in lower costs in about two years.

How do you get started? Go to

Go to Vanguard:


Copyright 2013, Universal Press Syndicate