Variable annuities are insurance contracts designed to help you reach your long-term financial goals by providing you with a way to accumulate tax-deferred retirement savings while you are preparing for retirement and a stream of income to use when you are in retirement.
When you invest in a variable annuity, the insurance company typically offers a selection of underlying mutual fund-like investments called “subaccounts.” You can choose from several professionally managed and diversified variable annuity subaccounts or portfolios based on your investment objectives, comfort level with risk and length of time until you retire.
There are several key features to consider with a variable annuity.
Tax-deferred growth
During the accumulation phase, increases in the value of the annuity are not subject to taxes until withdrawn.
Flexible income options
During the distribution phase, you may take income from a variable annuity in a number of ways:
- All deferred annuities can be converted to a lifetime stream of income.
- You may also have the option to take systematic withdrawals, the amount of which can be adjusted at any time.
- Some variable annuities enable the policyholder to elect an optional living benefit. Such benefits can provide certain guarantees for contract withdrawals for life. These benefits may require additional fees, charges, expenses or investment restrictions, and they may be subject to eligibility limitations.
Guaranteed death benefit
If the owner of the annuity passes away, the beneficiary is usually guaranteed the amount originally invested, minus previous withdrawals. Additional death benefit options may be available.
Avoiding probate
Variable annuity proceeds paid to the beneficiary upon death are excluded from estate probate. However, the proceeds are subject to ordinary income taxes and estate taxes.
