Investing in Variable Annuities
A variable annuity is a tax-deferred investment option aimed at helping those planning for retirement. It allows you to choose from a variety of investments, and once you retire, the annuity pays you an income determined by the performance of the investments you chose. The better your annuity performs, the more income you’ll receive as a payout during retirement. A fixed annuity, on the other hand, provides a guaranteed payout over time, without subjecting your retirement income to the volatility of the stock market.
What Distinguishes Variable from Fixed Annuity?
Unlike a fixed annuity, a variable annuity is designed to give you a chance to increase savings by giving you with opportunity for long-term growth by investing in anything various stock and bond funds. You do not get taxed on any gains until withdrawal, and because of the growth potential, variable annuities can outpace inflation when managed properly.
The Risk of Investing in Variable Annuities
Variable annuities also come with a certain amount of risk. For starters, if your investments fail to perform, the value of your annuity can decline – resulting in a lower payout to you. In addition, because you do not pay taxes on gains when earned, you do have to pay taxes when you withdraw them. If you withdraw early, you could face penalties around 10% if you are under 59 ½ years old; further, certain long-term capital gains are taxed at an ordinary income rate, which is higher than the capital gains rate. Finally, you are likely also going to have to pay annual management fees and sales commissions on your investment.
Call a Los Angeles Stock Attorney Today
If your broker failed to advise you of the risk of an investment or failed to disclose the penalties and fees for early withdrawal, you may have certain legal rights that require your immediate attention. Contact an experienced Los Angeles stock attorney today for a consultation to discuss your rights and obligations.