What’s your plan to save for retirement? If you’re like many Americans, your strategy may include participating in a 401(k), contributing to an IRA, investing in the market or buying an annuity. While each of these tools can help you save for retirement, an annuity offers distinct advantages that may give you more flexibility over the way in which you save for retirement—and control over the choices you make in retirement when it’s time to take withdrawals.
Here’s an example. Jason is a 45-year-old accountant. He has maxed out contributions to his employer-sponsored 401(k). He also has money in other places that he’d like to invest to increase the potential for growth of these funds.1 Based on discussions with his financial advisor, he’s chosen a variable annuity for his tax-qualified 401(k) rollover money—so he can better manage his investment options. Because he will be transferring these funds directly into another tax-qualified account, there are no tax implications.2
Jason also has cash in a savings account to invest over the long term for retirement. He will place a portion of these after-tax dollars into a separate variable annuity.3 As with an IRA, the contributions Jason makes to this variable annuity—plus any gains—won’t be taxed until he starts taking withdrawals. Unlike an IRA, however, there’s no cap on the amount he can contribute to a variable annuity. For both of his annuities, Jason can also choose from a wide variety of investment options. And over time, he can make transfers or exchanges between investment funds—easily and without fees.
When he reaches retirement age, Jason will have a number of options: He can …
- Leave the money alone.
- Start taking the money through periodic or regular withdrawals.
- Receive lifetime income that increases or decreases based on the market.4
- Convert his money into a fixed income amount that is guaranteed for a specific period of time, for the rest of his life, or for the life of a spouse or whomever he chooses.5
When considering a variable annuity, be sure to choose a company that’s been awarded the highest financial strength ratings to any insurer6 and also offers flexible investment options and competitive fees.7
1 No investment strategy can guarantee a profit or protect against loss.
2 Tax-qualified plans and IRAs are subject to special tax rules that apply regardless of the type of asset funding the plan. Therefore, any unique tax treatment normally afforded to an annuity is eliminated when that asset is used to fund a tax qualified plan.
3 An annuity is a long-term-investment, offered by an insurance company, which may be suited for retirement. The underlying investment options in a variable annuity are subject to market risk, including loss of principal, and are not guaranteed.
4 Withdrawals from annuities may be subject to ordinary income tax, a 10% IRS penalty if taken before age 59½ and contractual withdrawal charges.
5 Assumes money is converted into a fixed income plan. Annuity guarantees are backed solely by the claims-paying ability of the issuer.
6 Third-party ratings are a measure of a company’s relative financial strength and security but are no reflection of the safety or the performance of the variable funds.
7 Variable annuities have additional fees such as sales charges, management fees and mortality and expense charges.