variable annuities

Question 1

what is a variable annuity

Answer 1

-a retirement vehicle that can provide a lifetime income

Question 2

how are variable annuities funded?

Answer 2

• funded with after-tax dollars
• money grows tax-deferred
• earnings taxed at distribution

Question 3

earnings received on a variable annuity distributions are taxed as?

Answer 3

ordinary income taxes

Question 4

advantages of a variable annuity account

Answer 4

• safe
• competitive rate of return
• protection against inflation
• tax deferred

Question 5

payout on variable annuities are paid out based on?

Answer 5

life expectancy of owner

Question 6

when paying into a variable annuity account, it is called the?

Answer 6

accumulation phase and there is no max contribution limits

Question 7

when receiving payouts from a variable annuity, it is called the?

Answer 7

annuitization phase and once a plan is decided on, there is no flexibility in distribution payments

Question 8

how are variable annuities priced?

Answer 8

-pricing similar to mutual fund (NAV per share and unit value calculated daily)

Question 9

what happens to dividends and capital gains on a variable annuity?

Answer 9

they must be reinvested

Question 10

what are the three options owner can chose for the annuitization phase of a variable annuity?

Answer 10

• life only
• life with period certain
• joint and last survivor

Question 11

describe the life only payout option

Answer 11

• straight life annuity
• largest monthly payment
• check until owner dies

Question 12

describe the life with period certain payout option

Answer 12

• beneficiary required
• 15 year payments guaranteed even if owner dies
• beneficiary receives check if owner dies for remainder of 15 years

Question 13

describe the joint and last survivor payout option

Answer 13

• involves 2 annuitants
• pays check until both annuitants die
• smallest monthly payment

Question 14

describe what happens with a lump sum withdrawals

Answer 14

• all earnings above cost basis taxed

- cost basis returned tax free

Question 15

describe the AIR

Answer 15

• assumed interest rate

- conservative estimate of return on investments in the separate account

Question 16

describe withdrawal penalties

Answer 16

withdrawals made prior to age 59 1/2 subject earnings to taxes plus a 10% penalty fee

Question 17

variable annuities are not suitable for?

Answer 17

qualified plans like IRAs and 401ks because earnings are already tax deferred