Variable annuities are offered by insurance companies as retirement investments. Variable annuities are similar to mutual funds with some significant differences, most substantially, regular payments after retirement.
- Insurance companies offer variable annuities with varying stipulations attached. It is advisable to review the prospectus carefully before making any commitment.you should be clear about all the facts
- Investments in variable annuities are tax deferred until you begin to withdraw funds. Section 1035 of the Internal Revenue Service (IRS) tax code allows you to transfer funds from one annuity to another without taxation.
- There are typically fees and other charges with variable annuities, such as surrender charges and administration fees. These vary widely so it is wise to compare these fees when comparing annuities.
- The federal penalty for early withdrawal is 10 percent and the insurance company will charge a percentage in penalties so variable annuities should be only used as a long-term investment.
- The two phases to variable annuities are the accumulation phase and payout phase with certain conditions on both so, again, check the investment.
- If you die before all payouts are made, your heirs will receive the cash value of the annuities. However, they will be taxed on the income without the tax advantages you enjoyed.
- The benefit of variable annuities over mutual funds is that they go into fixed accounts with fixed interest rates and, upon retirement, there are regular, monthly payments.