SECTION IV: INVESTMENTS

Advantages/Disadvantages

Variable Annuities offer a variety of professionally managed investment choices, tax-deferred growth and tax-free transfers so the investor does not have to file annual 1099 forms for capital gains. In addition, variable annuities offer an option for a guaranteed lifetime income, as well as a guaranteed death benefit for beneficiaries. Furthermore, there are no annual contribution limits and investors can continue making contributions past age 70 ½ without having to begin mandatory distributions.

Investors who are considering purchasing a variable annuity must weigh its disadvantages against its advantages. Disadvantages for variable annuities include potentially higher fees and early withdrawal charges on withdrawals made within the first few years of the variable annuity contract. In addition, upon withdrawal, earnings are taxed at the investor's ordinary income tax rate instead of the lower capital gains rate and, if under age 59 ½, may result in a 10 percent federal penalty tax. Furthermore, if the investor is unfortunate and dies prematurely after he or she has begun annuity payments, the remaining account balance may be forfeited to the insurance company.

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