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What are Variable Annuities and How
Can They Be Used Effectively?

By Brian Schmitz, VP, BMO Harris Financial Advisors, Inc.

With a variable annuity you basically have a long-term investment vehicle within an insurance agreement purchased from an insurance company. The insurer makes payments to you, either immediately or at a future agreed date. The value varies depending on performance of investment options you choose within the annuity. Investment options typically may include different mutual funds that invest in bonds, stocks or money market funds. This allows a diversified investment portfolio to be built within a variable annuity.
One potential attraction of a variable annuity is that money deposited grows on a tax-deferred basis (like within an IRA); taxes on investment growth are not due until a withdrawal is taken. This allows movement between different investment options within the annuity (“sub-accounts”) without additional fees or recognizing a taxable gain.
Variable annuities may offer optional features (for additional charges) such as a minimum income guaranteed by the insurance company. For those who value having a guaranty on minimum income from their assets, a variable annuity may be worth considering vs. traditional market investments. However, it is important to carefully consider the value to you of each variable annuity benefit, as there are always costs or charges associated.

The information provided is for broad discussion only and not intended to constitute legal or tax advice. Readers should consult their own legal or tax advisors. There are many important considerations for determining if an investment is suitable for you. An experienced financial advisor can help guide you in exploring what investment and insurance products may best fit your particular needs and values.

about the writer Brian Schmitz is Vice President, Sr. Financial Advisor, with BMO Harris Financial Advisors, Inc., an affiliate of BMO Harris Bank N.A. Member FINRA/SIPC. Brian specializes in helping individuals plan for financial goals such as income in retirement. Brian can be reached at (630) 420-3576 or brian.schmitz@harrisbank.com.