Variable annuities, unlike fixed annuities, offer additional investment options, which results in a greater risk for your investment. The value of your annuity is dependent on your investments’ performance, and one of the main benefits of this type of investment is that the income and profit is not taxed until the withdrawal begins. Prior to signing any paperwork, it is important to know what your goals are and the choices that you have to achieve those goals through this type of annuity.
Know your options. Investing in a variable annuity allows flexibility for the investor to take part in stocks, bonds and money markets. These are sometimes called sub-accounts, and you can typically choose your mutual funds from a list of available funds when the time comes to do so.
Choose the deferred variable annuity option as the immediate variable annuity is for those who are already at retirement age; the immediate option allows for payout as soon as the annuity is purchased. Deferred annuities, however, allow the account to grow over a period of time; you may then submit for a lump sum cash-out or annuitize your payments. This option is ideal for those who are planning for retirement.
Understand the fees, taxes and penalties. Withdrawals made after 59.5 years of age are subject to income tax. Any withdrawal made prior to this age is subject to a 10 percent penalty in addition to the tax. Variable annuities are known for the fees associated, which include insurance fees plus fund expenses. Many variable annuities pay commission from the ongoing fees.
Research features such as the death benefit. The death benefit is a common feature that provides your beneficiary with all of the money in your account or the purchase payments you have made minus any withdrawals. For instance, you have purchase payments for an annuity that total $100,000 in value and have made $10,000 in withdrawals from your account. If you subtract your withdrawals and take into account the investment losses, your account has $75,000. Because of the death benefit, your beneficiary will receive $90,000, which accounts for the withdrawals you made. Other features include the guaranteed minimum income benefit at an additional charge and the long-term care insurance.
Finalize your investment. Once you have made the decision on the specifics with your variable annuity, contact your financial institution and sign the necessary paperwork.
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