A Variable Annuity is a type of annuity contract that defers payments to the annuitant based on the investment outcomes of certain assets owned by the annuity. Quite different from a fixed annuity which pays a specific interest rate, the payments from a variable annuity fluctuate depending on the performance of the investment options chosen by the holder, generally comprising stocks, bonds, and money market funds. The unqiue feature of a variable annuity is the transfer of investment risk from the insurer to the individual, providing potential for higher gains but also implying greater risk.
Key Features
Investment Options
Variable annuities often offer a range of investment options from conservative to aggressive portfolios. Participants can choose where their premiums are invested.
Tax Deferral
Gains and earnings within a variable annuity accumulate tax-deferred until withdrawal. This can result in substantial tax savings and aid in retirement financial planning.
Legal and Financial Consideration
It’s essential to be aware of fees associated with variable annuities, which often include administrative fees, mortality and expense risk fees, and sometimes withdrawal or surrender charges.
For further details and up-to-date regulations consult the Internal Revenue Service and the Securities and Exchange Commission recommendations regarding investments in variable annuities.
