Are variable annuities right for your clients?

This article develops a profile for potential variable annuity (VA) owners. A critical component in developing this profile is the determination of the minimum time horizon required for the tax benefits of VAs to outweigh the often higher fees imposed by VAs relative to mutual funds. The main conclu...

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Bibliographic Details
Published in:Journal of Financial Planning 2003-01, Vol.16 (1), p.66
Main Authors: Ding, Yongling, Peterson, James D
Format: Article
Language:English
Subjects:
Administrative expenses
Beneficiaries
Capital gains
Cost control
Fees & charges
Financial planning
Fines & penalties
Guarantees
Income taxes
Investment policy
Investments
Mutual funds
Probate
Relief provisions
Retirement plans
Tax free exchanges
Tax planning
Variable annuities
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Summary:This article develops a profile for potential variable annuity (VA) owners. A critical component in developing this profile is the determination of the minimum time horizon required for the tax benefits of VAs to outweigh the often higher fees imposed by VAs relative to mutual funds. The main conclusion is that, under the right circumstances, VAs may be appropriate for those highly taxed investors with at least a five-year investment time horizon who have reached their contribution limits in qualified plans. This conclusion applies to situations where the investor is not subject to early withdrawal penalties. Because qualified retirement plans offer tax advantages beyond those offered in a VA, investors generally should contribute the maximum allowable amount to qualified retirement plans before contributing further savings to a nonqualified VA.
ISSN:1040-3981