Comparing Mutual Funds to Variable Annuities     Ever wonder what is the difference between a mutual fund and a variable annuity? Well, the quick answer is that there are many differences.  The following is a list of the most important ones that you should be aware of.  Call us to discuss how these issues impact on your financial security and your estate planning needs.     Gains from mutual funds are taxed annually at rates exceeding 20%, while variable annuity withdrawals are taxed at rates that rarely exceed 20%.   Variable annuities can be switched for different annuities within the same annuity company or exchanged for a different annuity without incurring tax consequences.   Mutual fund ownership, unlike variable annuity ownership, may result in a reduction of loss of college financial aid.   Mutual fund ownership, unlike variable annuity ownership, may disqualify the owner from Medicaid assistance.   Variable annuities are non-probate property.  Attempts to convert mutual funds into non-probate property can be problematic.   Variable annuities are protected from creditors in many cases where mutual funds are not.   Variable annuities provide a death benefit unavailable to mutual fund holders.   If capital gains rates or holding periods are increased, variable annuity owners will benefit while mutual fund owners will be penalized.   Many variable annuities allow dollar cost averaging, which includes paying from 8% to 10% on funds awaiting investment.  Mutual funds do not provide this advantage.   The tax treatment for losses taken on variable annuities is more beneficial than with mutual funds.   Annuitization of a variable annuity for retirement income or estate planning will always provide more after-tax benefit than an equal sized portfolio of mutual funds.   The distribution reporting requirements of mutual funds effectively precludes purchasing mutual funds late in the year.  Variable annuities can be purchased any time during the year without negative tax consequences.   Redemptions by some mutual fund owners can force non-redeeming owners to pay increased income taxes on “imbedded gains,” even when the fund involved is losing money.  Variable annuities present no similar tax trap.   Unlike variable annuity ownership, mutual fund ownership may cause a significant reduction in an owner’s tax deductions, credits and/or exemptions, which in turn may result in increased income taxes.   Mutual fund ownership, unlike variable annuity ownership, may negatively impact other retirement benefits.   In-depth academic and industry studies clearly demonstrate that variable annuities are better long-term investments than mutual funds.   Mutual funds, unlike variable annuities, are beginning to restrict when investors can sell or exchange their funds or are imposing hefty redemption fees when sales do occur.   The record-keeping requirement for mutual fund owners, unlike variable annuity owners, is onerous.   Many variable annuity issuers, unlike mutual fund companies, offer valuable living benefits to purchasers of their variable annuities.   Variable annuities, unlike mutual funds, provide purchasers with a no-risk revocation or free-look period when buying a variable annuity.     CALL US at 800-501-3220 or Email Us to learn more about Variable Annuities and how they compare to Mutual Funds, and how you can prepare a proper estate plan using Variable Annuities.         Return to the list of Estate Planning topics. Printer Friendly Version