Variable Annuities

With billions of investment dollars going into mutual funds, insurance companies created a competing product called Variable Annuities that allows you to invest your money within investment portfolios called subaccounts. Unlike other annuities, a variable annuity does not guarantee a set rate of interest or earnings, being based instead off fund performance and account averages. However you can buy, sell and switch funds at any time without incurring taxes until you begin to withdraw your original investment and income after age 59 ½. At that time your gains are taxed as ordinary income.

Variable annuities are sometimes used by investors who like to trade (buy and sell) mutual funds often, who do not need their money for many years to come, and are in a very high tax bracket now but plan to be in a much lower tax bracket at retirement.