What Are Variable Aunnities?

Many Americans have some sort of variable annunities apart of their retirement portfolio. However, many people do not really understand the basics of variable annunities only that they receive some sort of periodic payment.

What You Should Know

A variable annuity is a contract between a person and an insurance company. In the contract the insurance company agrees to make payments on a periodic basis, typically either monthly or yearly and you either make a lump space purchase payment or through a serious of payments.

Annunities come in all sorts of investment options which usually are mutual funds that invest in money market instruments, bonds and stocks. Aunnities are different than mutual funds in that you receive periodic payments for the rest of your life or whomever is designated on the annunity contract. There is also a death benefit in that if you die before receiving any payments, your beneficiary will receive a guaranteed amount.

One of the biggest benefits is that variable annunities are tax-deferred meaning that you don't need to pay any taxes on investment gains until you start withdrawling money. The drawback is that if you take money out of a variable annunity, you will be taxed at your regular ordinary income tax rate rather than the much lower capital gain rate.