Variable Annuity

Variable annuities are securities that attract investors seeking retirement income with inflation protection. However, the investment risk in a variable annuity belongs to the annuitant.  Variable annuities could be valuable during retirement despite the fact that they generally have additional fees such as mortality and expense risk charges and administrative fees, which are not typically found with other types of investments. Not only do they provide a way for you to protect your investment growth from current taxation but many of them actually have built-in features that work very much like income ladders.

Variable annuities are contacts sold by insurance companies that allow you to invest your money without having to pay income taxes on your investments gains until you take them out during retirement. Your ability to delay paying taxes on your investments earnings could help you accumulate more money.  The great thing about variable annuities is that the allow you to invest in a variety of accounts that are invested in the stock market and are often managed by a number of different investment managers- so you can go after higher rates of return in the stock market without being subjected to ongoing taxes.

An important aspect of variable annuities is that through the use of what’s called a 1035 exchange, you could move your money from a variable annuity into a SPIA without having to pay income taxes, so you could go after the growth you may need in the stock market and then be able to move the money into an Income Ladder without paying taxes at the time of conversion. This could help you generate more income during retirement. However remember that while no taxes or IRS penalties will be incurred, there may be surrender penalties for early withdrawal charged by the issuing insurance company. Therefore you have to do homework.

Questionnaire:

• What are variable annuities?
• What are the advantages of variable annuity?