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Roger Green
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By Roger Green
Would you like to own an investment with guarantees you will not lose money? Would you like to invest in mutual funds without paying taxes each year on the profits you earn? Variable annuities can provide these benefits.
Variable annuities are securities products offered by insurance companies. Each one offers “sub-accounts” managed by a mutual fund company that allow for the type of diversification mutual funds provide. The return you earn varies with the performance of the sub-accounts chosen, just like a mutual fund investment will vary based upon the performance of the fund.
You can roll 401(k) and IRA money into this type of account, and money placed in a variable annuity grows tax-deferred, which means you do not pay taxes on your earnings until your withdraw your money. Money that grows tax-deferred grows more quickly than money that is taxed annually. Variable Annuities provide no additional tax advantage for IRA’s.
As a result of past bear markets, many investors know the best way to grow assets effectively over long periods is to invest in mutual funds, but they also know that mutual funds can lose much of their value during certain periods. In response to this concern, the insurance companies have begun offering performance guarantees, for additional cost, in the form of both living benefits and death benefits.
There are variations in the living and death benefits you can choose and variations in cost, but, for example, a living benefit may promise to pay you a withdrawal amount based on your original investment (generally 7% per annum), even if the value of that investment declines. Death benefit protection provisions generally guarantee to pay your beneficiaries the greater of: 1) what you invested minus withdrawals or 2) the current value or 3) the highest anniversary value. These new features generally cost an additional .0035% or about $35.00 on each $10,000 invested.
Variable annuities are not perfect: there are risks of fluctuating sub-accounts; costs are usually higher than the costs of mutual funds; and as with all insurance products, there is the possibility of insolvency on the part of the insurance company, as the guarantees are backed by the underlying financial strength of the issuing insurance company. In exchange for not taxing you every year, any withdrawals you make prior to age 59 1/2 are subject to a 10% IRS penalty. This is not a short-term investment vehicle. To keep people invested, most insurers assess a surrender charge for withdrawals over a certain amount within the first 3-8 years, although there are variable annuities available with no surrender charge.
An experienced financial professional, such as myself, will be able to help you determine if variable annuities would be an appropriate addition to your investment portfolio. Call 770.931.1414 if you would like further guidance on this or any financial planning concern.
Roger S. Green is a Registered Representative of Multi-Financial Securities Corporation, member FINRA/SIPC, with his office located at 3700 Crestwood Parkway, Suite 140, Duluth, GA 30096. Hear more “Your Green”, Saturdays at 2:00, on WNIV 970 AM or live at www.wniv.com. Visit Roger’s website at www.rogersgreen.com.
