Variable AnnuitiesBuckle Your Seat Belt!
Variable annuities are also a tax deferral vehicle that allows your money to grow on a tax-deferral basis. Again, investment gains are not taxed until you take a distribution. They offer many funds called “subaccounts” from multiple money managers. You can move money from different subaccount without being changed any additional fees. All of these annuities also offer a fixed account.
ProsThey are like the hot rod. When the market goes up, you make money. Over time, they can outperform CD’s, fixed annuities, and even
indexed annuities.
They offer great growth potential and may outpace inflation.
ConsAnything that has the word "variable" in it denotes "RISK." These following disadvantages can diminish their advantages. Risk: If the investments go down in value so does your annuity value.Fees: They have numerous fees that can eat into your gains, as much as 2-4% a year. Taxes: Long term capital gains are taxed at ordinary income rates when you take a distribution. If you are in a high income tax bracket, you are converting long term capital gains taxed as ordinary income rates and you can face higher rates. My RecommendationThese annuities can boost your retirement savings but beware of the potential downside.
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