a variable annuity guarantees an earnings rate of return . a variable annuity does not guarantee an earnings rate of return. a variable annuity guarantees payments for life. a variable annuity does not guarantee payments for life.
What is the point of a variable annuity?
A variable annuity is a tax-deferred retirement vehicle that allows you to choose from a selection of investments, and then pays you a level of income in retirement that is determined by the performance of the investments you choose . Compare that to a fixed annuity, which provides a guaranteed payout.
Which statements are true about variable annuities?
Which statements are TRUE about variable annuities? The best answer is C. There is no tax deduction for contributions made to a variable annuity contract . The major advantage is the tax-deferred build-up of earnings in the separate account.
Which of the following characteristics of a variable annuity?
A typical variable annuity offers three basic features not commonly found in mutual funds: tax-deferred treatment of earnings ; a death benefit; and. annuity payout options that can provide guaranteed income for life.
What is an example of a variable annuity?
Example: Your variable annuity has an M&E charge at an annual rate of 1.25% of account value . Your average account value during the year is $100,000, so you will pay $1,400 in M&E charges that year. Example: Your variable annuity charges administrative fees at an annual rate of 0.15% of account value.
Can variable annuities lose value?
Insurance companies invest your annuity premiums in mutual funds. ... The subaccounts inside your variable annuity lose money whenever the underlying securities drop in value . Theoretically, your variable annuity could become worthless if your insurance company makes really poor investment decisions.
Why are variable annuities bad?
Fourth, variable annuities lack the liquidity of mutual fund investments . Because of high sales commissions and the insurance component, most VAs have a surrender charge to exit the VA for a period of time ranging from a few years to a decade after purchasing it.
When would you use a variable annuity?
Variable annuities are designed to be long-term investments, to meet retirement and other long-range goals . Variable annuities are not suitable for meeting short-term goals because substantial taxes and insurance company charges may apply if you withdraw your money early.
How can I avoid paying taxes on annuities?
With a deferred annuity, IRS rules state that you must withdraw all of the taxable interest first before withdrawing any tax-free principal. You can avoid this significant drawback by converting an existing fixed-rate, fixed-indexed or variable deferred annuity into an income annuity .
What are main disadvantages of annuities?
- Annuities Can Be Complex.
- Your Upside May Be Limited.
- You Could Pay More in Taxes.
- Expenses Can Add Up.
- Guarantees Have a Caveat.
- Inflation Can Erode Your Annuity’s Value.
What are fixed and variable annuities?
A fixed annuity guarantees payment of a set amount for the term of the agreement . It can’t go down (or up). A variable annuity fluctuates with the returns on the mutual funds it is invested in. Its value can go up (or down).
Which characteristic is shared by both fixed and variable annuities? Explanation: When payments begin on a variable annuity, the annuitant is credited with a specific number of annuity units . This number will remain fixed.
What are the fees in a variable annuity?
These charges can range from 0.25 to 1 percent a year. In total, average fees on a variable annuity are 2.3 percent of the contract value and can be more than 3 percent .
What is guaranteed in a variable annuity?
A variable annuity is part investment, part insurance. You put your money in mutual-fund-like accounts, and gains are tax-deferred until you withdraw the money. ... The guaranteed step-up means that the value of the benefit base can grow more than the value of your underlying investment .
What fees apply to both fixed and variable annuities?
Fixed Indexed Annuities traditionally charge around 1% of your account value annually if an optional rider/benefit is chosen. Variable Annuities charge anywhere between 3% to 4% of your account value annually , which typically includes investment advice and management and optional fees.
Can you convert a variable annuity to an IRA?
You can roll over qualified variable annuities —those established with pre-tax dollars—into a traditional IRA. 3 Qualified annuities are often set up by employers on behalf of their employees as part of a retirement plan.
