Variable annuities are investment vehicles that are structured much like a 401(k). The owner of a variable annuity is able to choose from several investment options with in one product. Investment options will typically range from money market accounts on the conservative side, to foreign equities on the aggressive side.
Unlike a fixed annuities, there is a potential for losses as well as a potential for higher gains. The payouts with vary depending on specific investment options selected in the account. You may choose to fund the annuity with a lump sum up front payment or contributions over time.
Variable annuities are used for many different objectives. One common objective is deferral of the recognition of taxable gains. Money deposited in a variable annuity grows on a tax-deferred basis, so that taxes on investment gains are not due until a withdrawal is made.
Variable annuities offer a variety of funds ("sub-accounts") from various money managers. This gives investors the ability to move between sub-accounts without incurring additional fees or sales charges.
All annuities have three primary advantages: Tax Deferral, Avoidance of Probate, and a Guaranteed Income (optional) for a fixed period of time, or income for life. More specific reasons to invest in variable annuities:
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