Memo to people saving for retirement: If you're looking at tax-deferred variable annuities, look twice. The industry is pumping them out to investors who want tax-sheltered gains. But there's a lot of deceptive or inappropriate selling going on.

Variable annuities often make sense for younger people in higher tax brackets.

They're questionable for retirees, people in low brackets and workers who are investing in retirement plans such as IRAs. Yet these are the very people who are buying the most.

To understand the risks, you only have to read between the lines of a cautionary notice released in May by the National Association of Securities Dealers in Washington.

The NASD wields authority over the people who sell variable annuities. The notice warned stockbrokers and insurers to disclose all the facts about these investments, including their limitations and fees.

Thomas Selman, a vice president of NASD Regulation, said that the guidelines were developed with feedback from the industry and that reaction has generally been good. For brokers who act as if everyone should buy a variable annuity, this should be a wake-up call.

When you buy a tax-deferred variable annuity, you're essentially investing in mutual funds. You can choose among stock, bond and money-market funds and move your money from one to another. Your gains are tax-deferred until you withdraw the money.

But before you jump, here are some of the things the NASD wants you to know:

* You shouldn't buy a variable annuity unless you'll hold it, untouched, for many years. There's generally a 10 percent IRS penalty for withdrawals before age 59 1/2.

Most insurers impose their own penalty for withdrawals during the first six to 10 years. Some exceptions: the low-cost annuities sold by Vanguard, T. Rowe Price and TIAA-CREF.

* If you want tax deferral and you're investing with money in your IRA or another retirement plan, you don't need a variable annuity.

Sure, these annuities are tax-deferred, but your retirement plan is tax-deferred already. Why pay for this advantage twice? You can buy regular mutual funds at a lower cost and still enjoy tax-deferred returns.

Sales commissions on variable annuities average about 6 percent, according to Cerulli Associates in Boston. Some are as high as 13.5 percent. By contrast, you might pay around 4 percent for mutual funds bought from stockbroker or planners and zero for no-load funds you choose yourself.

High-cost variable annuities--sold for IRAs, Keoghs, 401(k)s and other retirement plans--are the target of several class-action lawsuits. I wrote about these cases in April and got floods of letters from readers who felt that they, too, had been misled.

These cases are being handled out of the New York office of the class-action law firm Milberg Weiss Bershad Hynes & Lerach. Milberg Weiss lawyer Michael Spencer says of the NASD's notice, "This is a good step toward preventing many future abuses."

* Variable annuities are hard to justify for older people investing with taxable income. Money withdrawn from an annuity is taxed in your regular bracket. If you had put that same money in mutual funds outside an annuity, withdrawals would be taxed at the low capital-gains rate.

You have to hold a variable annuity for 12 to 20 years or more before your gains from tax deferral outweigh the higher taxes and expenses you have to pay. The lower your tax bracket, the longer your wait.

Older people might never break even. But affluent parents might consider buying them for children as a gift (minimum investment: usually $2,500).

People in their 60s should take care not to put a substantial portion of their IRAs into variable annuities with 10-year withdrawal penalties. You have to start taking money out of your IRA after age 70 1/2. If you put your IRA into a variable annuity that's less than 10 years old, there will be a penalty to pay.

The NASD suggests that firms not sell to customers beyond a certain age. I've had letters from people whose 90-year-old parents were sold variable annuities that carried 10-year withdrawal penalties. That's pretty bad.

* If you've bought a variable annuity for the right reasons, you should generally keep it. Some salespeople will try to switch you into another variable annuity after the penalty period on withdrawals has expired. That earns them another sales commission, while you face a new 10-year penalty period on withdrawals.

Will salespeople really make all this clear to their customers? If they do, many fewer variable annuities would be sold.