A variable annuity could be an effective part of your investment strategy. Consider the following factors:
Are you at your 401(k) limit?
Keep in mind that money goes into a retirement plan at work before taxes, while you invest in an annuity with after-tax dollars. But remember too that there’s a limit on the amount you can contribute to a 401(k) or similar retirement investment plan at work. The limit on most variable annuities is $1 million or more.
Do you own an IRA?
In many cases, contributions to a traditional IRA are tax-deductible, so you may want to consider an IRA before looking at an annuity. Contributions to a Roth IRA are not tax-deductible but your withdrawals are tax-free. However, your ability to contribute to either a traditional IRA or a Roth IRA may be constrained by income limits. Both traditional and Roth IRAs also have contribution limits — $5,500 for 2013 and 2014 (plus an additional $1,000 if you are age 50 or over) — while an annuity’s limit is much higher.
If you’ve reached the limit on your retirement plan at work, have a traditional or Roth IRA, and want to put more aside for retirement, you should consider investing in a variable annuity.
Did you get a lump sum?
Perhaps you received an inheritance or a bonus at work that you want to invest for retirement. A variable annuity offers the potential of tax-deferred growth.
Are you retired?
Retirees often consider a variable annuity when they have money that they know they won’t need for several years or when they want to create an income they can’t outlive to supplement other income.
No matter what your circumstances, it’s important to remember that variable annuities are long-term investments that you expect to keep for many years.