variable annuities Flashcards
what is a variable annuity
-a retirement vehicle that can provide a lifetime income
how are variable annuities funded?
- funded with after-tax dollars
- money grows tax-deferred
- earnings taxed at distribution
earnings received on a variable annuity distributions are taxed as?
ordinary income taxes
advantages of a variable annuity account
- safe
- competitive rate of return
- protection against inflation
- tax deferred
payout on variable annuities are paid out based on?
life expectancy of owner
when paying into a variable annuity account, it is called the?
accumulation phase and there is no max contribution limits
when receiving payouts from a variable annuity, it is called the?
annuitization phase and once a plan is decided on, there is no flexibility in distribution payments
how are variable annuities priced?
-pricing similar to mutual fund (NAV per share and unit value calculated daily)
what happens to dividends and capital gains on a variable annuity?
they must be reinvested
what are the three options owner can chose for the annuitization phase of a variable annuity?
- life only
- life with period certain
- joint and last survivor
describe the life only payout option
- straight life annuity
- largest monthly payment
- check until owner dies
describe the life with period certain payout option
- beneficiary required
- 15 year payments guaranteed even if owner dies
- beneficiary receives check if owner dies for remainder of 15 years
describe the joint and last survivor payout option
- involves 2 annuitants
- pays check until both annuitants die
- smallest monthly payment
describe what happens with a lump sum withdrawals
- all earnings above cost basis taxed
- cost basis returned tax free
describe the AIR
- assumed interest rate
- conservative estimate of return on investments in the separate account
