Investment-only variable annuities are a type of annuity product that focuses solely on investment without any lifetime income guarantees. They provide certain tax advantages, investment flexibility, and death benefit protections. Compared to traditional variable annuities, investment-only ones have lower fees without complex guarantee choices. In this article, we will dive into the definition, unique features, advantages and also a real case example of using investment-only variable annuities.
Investment-only variable annuities allow investors to defer taxes with a wide range of investment options
Investment-only variable annuities are annuity contracts that provide no lifetime income guarantees. The key benefit is the ability to defer taxes on investment gains accumulated in the annuity. These products offer investors an array of investment options like stocks, bonds, mutual funds for potential growth. There is also downside protection in the form of a basic death benefit which guarantees beneficiaries will receive at least the amount originally invested if the contract owner passes away.
Lower fees and flexibility make investment-only variable annuities suitable for long-term goals
Unlike traditional variable annuities with complex living and death benefit guarantees, investment-only ones charge much lower annual fees, making them cost-efficient investment vehicles for retirement or other long-term goals. They provide unlimited flexibility to move money between a menu of investments without tax consequences. Investors can also access their money at any time, although withdrawals before age 59 1⁄2 may incur a 10% tax penalty in addition to ordinary income taxes.
A real case illustrates key benefits of using investment-only variable annuities
John, 55, rolled over $500,000 from his previous employer’s 401(k) plan into an investment-only variable annuity when he switched jobs. The annuity offers a diverse lineup of low-cost stock and bond funds for him to allocate based on his risk appetite. Now John can continue deferring taxes on investment earnings until he begins withdrawal at retirement. He also receives a basic death benefit guarantee so his beneficiary would get back at least $500,000 if John passes early. The annual fee of 50 basis points is low compared to alternatives. This investment-only variable annuity provides John ongoing tax deferral and death protection at a reasonable cost.
In summary, investment-only variable annuities offer tax-deferred investment growth potential without complex income guarantees. They provide unique advantages like income tax deferral, unlimited investment flexibility, basic death benefits and comparatively low annual fees. The real case illustrates how these products can benefit investors saving for retirement or other long-term goals.