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Checklist: Variable Annuity Checklist

Last update on: Dec 27 2018

Should you consider making a Variable Annuity part of your portfolio? This checklist will help you decide.

  1. Be sure you have maximized contributions to IRAs, Roth IRAs, 401(k) plans, and other retirement plans.
  2. If your investment strategy is to buy and hold for a long time stocks or mutual funds, consider investing through a taxable account to avoid the higher fees of a variable annuity. If you will invest in high-yield bonds or sell mutual funds after holding them for less than a year, consider a variable annuity.
  3. Be sure that you won’t need to withdraw money from the annuity for at least 10 years if it is a low-cost annuity and for at least 15 years if it is an average-cost annuity.
  4. Be sure you won’t need the money before age 59 1/2. If you do, you’ll owe a 10% penalty tax in addition to regular income taxes.
  5. If you are likely to leave the money to your heirs, consider investing in a taxable account. A variable annuity will be included in your estate, plus your heirs will owe income taxes on all gains and income when they take distributions. A taxable account will be included in your estate, but your heirs will get to increase the tax basis to the fair market value of the assets. That means there are no income taxes on the gains during your lifetime.
  6. Will you invest for growth or for income and safety? If you invest for low returns, then invest outside a variable annuity. The high expenses of an annuity are too high to be overcome by the low returns. If you own a variable annuity, you must invest for high returns.
  7. If you are confident that your tax rate will be lower in retirement than it is now, consider a variable annuity.
  8. Money and property that you might give to donate to charity during your lifetime shouldn’t be put in a variable annuity.
  9. If you decide on a variable annuity, buy one with no-load and low expenses. Look for one with no surrender fee, such as those offered by mutual fund companies and discount brokers.



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