Variable Annuity Fees Explained — M&E, Riders, Subaccounts

By Editorial Team

Published April 1, 2026 · Updated May 5, 2026

A typical variable annuity with a guaranteed lifetime withdrawal benefit (GLWB) costs approximately 3.3% per year in total fees, spread across six distinct fee layers: mortality & expense (M&E), administrative charges, subaccount management fees, contract maintenance fees, surrender charges, and optional rider fees. Understanding each layer is essential — the difference between a commission-based B-share and a fee-based I-share can exceed $120,000 over 15 years on a $500,000 contract.

The Six VA Fee Layers at a Glance

Fee Layer	Typical Range	Industry Average	What It Pays For
Mortality & Expense (M&E)	0.15% – 1.50%	1.19%	Insurance costs, carrier profit, agent commissions
Administrative Charge	0.10% – 0.30%	0.18%	Recordkeeping, statements, servicing
Subaccount Expense Ratio	0.10% – 1.50%	0.94%	Underlying fund management (like mutual fund fees)
Income / Benefit Rider	0.75% – 1.25%	1.00%	GLWB, GMIB, GMDB guarantee funding
Contract Maintenance Fee	$30 – $50/yr flat	~$35/yr	Basic policy administration (waived on large contracts)
Surrender Charge	0% – 8% (declining)	7-yr schedule	Penalty for early withdrawal during surrender period

The Six Fee Layers in Detail

1. Mortality & Expense (M&E) Charge

The M&E charge is the largest single fee in most VAs, averaging 1.19% per year on the total contract value. It is charged regardless of sub-account performance and covers three things: the insurance risk the carrier accepts (the mortality component), operating costs (the expense component), and most importantly — the upfront commission paid to the selling agent, which is recouped through this charge over the life of the contract.

In a traditional B-share VA, the M&E runs 1.25–1.50%. In an advisory I-share VA, the M&E is reduced to 0.15% or eliminated entirely, because no commission is paid. This single difference explains most of the long-term cost gap between share classes. New York Life, Nationwide, and Pacific Life offer both B-share and advisory versions of their flagship products.

2. Administrative Charge

Typically 0.10–0.30% annually (industry average 0.18%), this fee covers recordkeeping, statement generation, and general contract administration. It is small relative to the M&E and subaccount fees but adds to the total cost stack. A few carriers charge a flat dollar amount ($30–$50 per year) instead of a percentage — on a small contract, the flat fee may be proportionally higher; on a large contract, it may be lower.

3. Subaccount Expense Ratios

Each investment sub-account inside the VA carries its own expense ratio, just like a mutual fund. These range from approximately 0.10% for index-style sub-accounts to 1.50% for actively managed equity funds. The industry average across all sub-accounts is approximately 0.94%. Note that VA sub-account expense ratios are typically higher than the equivalent retail mutual fund’s expense ratio — the difference is sometimes called the “VA tax” on fund management.

If you allocate entirely to index sub-accounts (e.g., an S&P 500 index option inside the VA), you can reduce this layer to approximately 0.20%. If you use a typical diversified mix of active and index funds, expect 0.75–1.00%.

4. Rider Fees (GLWB, GMIB, GMDB)

Optional guaranteed benefit riders — the income guarantees that are the primary reason most people buy a VA — carry their own annual fee, typically 0.75–1.25% of the contract value per year. A guaranteed lifetime withdrawal benefit (GLWB) from Jackson Perspective II or Nationwide Destination typically costs 1.00–1.10% annually. This fee is deducted from your accumulation value, not from a separate rider benefit base — meaning it reduces the money available for growth even if you never activate income.

It is critical to note: the rider fee is charged whether or not you are taking income. If you purchase a GLWB but defer income for 10+ years, you will pay approximately 10% of your account value (not compounded, but deducted annually) in rider fees before ever receiving a guaranteed payment.

5. Contract Maintenance Fee

Many VAs charge a flat annual contract fee of $30–$50, regardless of contract size. On a $1,000,000 contract, this is trivial (0.003%). On a $50,000 contract, it represents an additional 0.07–0.10% annually. This fee is typically waived once the contract value exceeds a threshold (commonly $75,000–$100,000), so it is primarily a cost for smaller contracts.

6. Surrender Charges

Surrender charges are not an annual fee but a penalty for early withdrawal. Most B-share VAs have a 7–10 year declining surrender charge schedule, starting at 7–8% in year one and declining to 0% by the end of the surrender period. Withdrawing more than the free withdrawal amount (typically 10% per year) during the surrender period will trigger this charge. If you surrender the entire contract in year one, you receive 92–93 cents on the dollar.

Advisory I-share VAs typically have no surrender charge — the absence of an upfront commission eliminates the need for the carrier to recoup that commission over a surrender period.

Commission-Based vs. Fee-Based: A $120,000 Difference

The most consequential cost decision when purchasing a VA is share class. Consider a $500,000 contract held for 15 years, growing at 6% annually before fees:

Share Class	M&E	Admin + Subacct	Total Annual Cost	15-yr Value (est.)
B-share (commission)	1.35%	1.05%	2.40%	~$893,000
I-share (advisory, +1% advisor fee)	0.00%	1.05%	1.05% + 1% advisor	~$1,014,000

The difference of approximately $121,000 in ending value illustrates why share class matters far more than the product’s specific investment options or income rider features. If your advisor is a fee-only registered investment advisor, always ask specifically for the advisory (I-share) version. Leading I-share products include Nationwide Monument Advisor, Jackson Perspective Advisory, and Pacific Life Odyssey.

Are Variable Annuity Fees Worth It?

The honest answer is: sometimes. Three features that a VA provides that no mutual fund can replicate are: (1) tax-deferred compounding with no annual capital gains distributions, (2) a guaranteed lifetime income stream that cannot be outlived, and (3) an enhanced death benefit that can lock in high watermarks for heirs. If you are in a high tax bracket, have maxed all tax-advantaged accounts, and genuinely need a guaranteed income floor — the fees can be justified.

The case against VAs is equally clear: if you are already in a tax-advantaged account (IRA, 403b), adding a VA provides zero additional tax benefit while stacking an extra 1.5–2.5% in fees on top of your investments. Additionally, gains inside a non-qualified VA are taxed as ordinary income on withdrawal — not at the lower capital gains rate — which partially eliminates the tax-deferral benefit compared to simply holding index funds in a taxable account for 20+ years.

How to Find the True Cost of Your VA

Step 1: Ask for the product’s prospectus, not just the brochure. The fee table in the prospectus (typically in the first 10–15 pages, labeled “Fee Table”) lists every charge. Do not rely on a verbal summary.

Step 2: Add up all layers: M&E + admin + the average expense ratio of your selected sub-accounts + any rider fee. The sum is your approximate total annual cost as a percentage.

Step 3: Compare the resulting number to the income guarantee’s value. Use the RankMyAnnuity income/IRR calculator to determine the internal rate of return on the guaranteed income stream. If the income IRR is below the fee burden, you are overpaying for the guarantee.

The Hidden Fee: Tax Treatment on Withdrawal

One fee that doesn’t appear in any prospectus fee table is the tax cost of VA distributions. Gains withdrawn from a non-qualified VA are taxed as ordinary income, not as capital gains. In 2026, long-term capital gains rates top out at 20% for high earners — while ordinary income rates can reach 37%. For a high-income retiree withdrawing large sums from a VA, this tax differential can cost 10–15 cents per dollar of gain compared to holding the same assets in a taxable account.

This does not mean VAs are never tax-efficient — for investors in lower brackets or those annuitizing, the math can favor the VA. But the ordinary income tax treatment is a real cost that must be included in any honest fee analysis.

By comparison, FIA and MYGA gains are also taxed as ordinary income on withdrawal — but FIAs and MYGAs have no M&E, subaccount, or rider fees in most cases, making the total cost structure considerably lower. See our FIA vs. RILA comparison and best FIA rankings for more context.

Frequently Asked Questions

What is the average annual fee for a variable annuity?

Why are variable annuities so expensive?

What is a mortality and expense (M&E) charge in a variable annuity?

Can I avoid surrender charges on a variable annuity?

What fees does an FIA have compared to a variable annuity?

Run the Numbers Yourself

Use the free calculators at RankMyAnnuity to compare any annuity quote side-by-side — including fee-adjusted IRR. Open the Calculator