|
|
|
Are you willing to take some risk for a higher return?
Variable annuities combine some of the features available by investing in the stock market with the tax advantages and the potential lifetime income offered by annuities.
|
|
|
Invest in subaccounts
Variable annuities allow you to invest your savings in a variety of portfolios, referred to as subaccounts. Subaccounts are similar to mutual funds and can include stocks, bonds, money market funds or other securities. You select the subaccounts to invest in and choose how to allocate your money.
Risk
There is some risk involved in variable annuity investments. Your rate of return is based on the performance of the subaccounts you choose. In most cases, variable-deferred annuities offer more potential for growth than a fixed-deferred annuity. However, with greater potential comes greater risk. Your principal and any returns can be lost if the subaccounts perform poorly
Tax advantages
Returns from variable annuities are subject to the same tax advantages offered by deferred annuities. Variable annuity gains are not taxed until you make a withdrawal. The amount you earn is credited to your subaccounts, which allows your investment to compound more and grow faster than other savings plans. However, when the earnings are taxed eventually upon withdrawal, the earnings are considered "ordinary income" for tax purposes. This means that earnings that may otherwise have been characterized as long-term capital gains (and thereby eligible for lower tax rates), will NOT be eligible for such favorable tax treatment.
Few guarantees
The value of your investment in a variable annuity is subject to the performance (good or bad) of the underlying funds. As such, the value of your investment is NOT guaranteed. Most variable annuities DO provide a guarantee that, when you die, your investment will be no less than the total amount you put in minus any withdrawals. There is, however, an internal charge for this feature that is built into your policy and, as such, reduces your rate of return. Some variable annuities offer additional options; for example, a death benefit that equals the annuity's highest account value on any anniversary date within the past five years. These features do not come without a cost, and that cost is automatically deducted from your account annually.
Note: AccuQuote does not sell variable annuities. The information about variable annuities/registered products is provided for educational purposes only.
| |
