Variable (Deferred) Annuities*
A Variable Annuity (VA) is a tax-deferred vehicle that lets you build a personalized portfolio of stock & bond sub-accounts—similar to a 401(k) but with no IRS contribution limits for non-qualified annuities.
Gains grow tax-deferred; at withdrawal you pay ordinary-income tax on earnings. Unlike fixed annuities, you—not the insurer—bear market risk, so account value rises or falls with the investments you choose. For annuities held within a qualified plan, all withdrawals are fully taxable.
Key Points
Growth engine = mutual-fund sub-accounts
Choose from dozens of equity, bond, and balanced options to match your risk profile.
Tax-deferral allows for compounding
Reinvest dollars that would otherwise go to taxes—especially powerful over long horizons.
No IRS contribution cap
May be ideal for high earners who have maxed out 401(k)/IRA space. IRS limits will apply to annuities held with a qualified retirement plan.
High fees can erode returns
Typical VA expenses run 2 %–3 %+ per year (M&E, admin, fund fees, optional riders). Compare carefully—lower-cost VAs also exist.
Optional guarantees (riders)
Add lifetime-income, withdrawal, or enhanced death-benefit riders—extra protection but at an extra cost.
Surrender schedule & market risk
Early withdrawals may face 6–10 year surrender charges and potential market losses; keep money invested for the full surrender charge period to avoid surrender penalties.
Additional Important Information
History & use-case
First offered in 1952 (TIAA-CREF) to help fight inflation for educators; today popular with investors seeking tax deferred growth opportunity.
Variable vs. Fixed deferred
Fixed: insurer guarantees principal & interest rate. Variable: owner accepts market volatility and potential losses for higher upside potential.
Tax strategy
Withdrawals are subject to ordinary income taxes.
Risk-management tips
- Consider lower-cost sub-accounts
- Rebalance yearly or as needed
- Understand rider triggers and terms
- Verify insurer financial strength
Coverage Summary
Feature
What to Expect
Investment Choices
50-100+ equity, bond, and asset-allocation sub-accounts
IRS Contribution Limits
None (after-tax dollars), IRS limits apply if held within a qualified plan
Typical Fees
0.95 %–1.40 % M&E + 0.30 %–1.00 % fund expense; optional riders 0.9 %–1.5 %; these vary widely and are subject to change regularly
Guarantees
Death benefit (account value or higher “step-up”); optional living-benefit riders (GMIB, GMWB)
Risk
Full market volatility; principal not protected
Surrender Charges
Generally decline from ~7 % to 0 % over 6–10 years; 10 % annual free withdrawal feature common
Taxation
Earnings taxed at ordinary rates when withdrawn; 10 % IRS penalty if under 59½; for annuities within a qualified plan, all withdrawals are fully taxable
Ideal Users
Long-term, growth-oriented investors who have maximized other tax shelters and can tolerate market swings and potential losses.
When is a Variable Deferred Annuity a good choice?
A Variable Deferred Annuity could be a fit if you’re comfortable taking market risk in exchange for the potential to grow your money faster over time—tax-deferred.
In short, a variable annuity is often suitable for those who want to grow their money through investments, but also like the idea of future income and tax advantages. It’s more complex and comes with more risk, so it’s best suited for people who understand (or want help understanding) how it fits into a bigger financial plan.
Some factors that may make it appropriate for you:
- You’re investing for long-term growth and won’t need the money for at least several years.
- You want to invest in the market but also like the idea of turning that money into guaranteed income later.
- You’ve already maxed out other retirement accounts (like a 401(k) or IRA) and want more tax-deferred growth opportunity.
- You’re comfortable with investment ups and downs, knowing your account value can go up—or down—based on market performance.
- You may want optional benefits, like income or death benefit guarantees, even if they come with extra fees.
Bottom Line
A variable annuity has the potential to provide equity-based growth inside a tax-deferred vehicle, but make sure the extra fees, surrender schedule, and market risk fit your retirement blueprint.
Before investing, investors should carefully consider the investment objectives, risks, charges, and expenses of the variable annuity and its underlying investment options. The current contract prospectus and underlying fund prospectuses, which are contained in the same document, provide this and other important information. Please contact your financial professional or the Company to obtain the prospectuses. Please read the prospectuses carefully before investing or sending money.
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