Debunking the myth that variable annuities are only for retirees.

This is the third in a series of articles to help you overcome common objections to variable annuities (VAs). Each month we’ll tackle a myth about VAs and offer facts and information to counter those misconceptions.
A couple watches their children play and dream of the financially sound future they are building for their children and their own retirement.

Tax advantages of variable annuities.

Variable annuities (VAs) aren’t just for your clients who are already retired. Money within a VA account-- both contributions and gains--are tax-deferred and benefit from compounded growth. The longer your client is invested, the more opportunity for growth—so it may be a viable choice for anyone who wants to accumulate money for retirement.
And for high-income earning clients who often max out their contributions in 401(k)s/403(b)s and IRAs, and other tax-deferred investments, a VA gives them another way to take advantage of the benefits of tax deferral.

Investing for future guaranteed income.

Income-focused VAs often provide step-up or bonus features to help investors build future guaranteed income. For example, our Principal® Lifetime Income Solutions II VA offers either a step-up or bonus every year on the contract anniversary.* Clients receive whichever value is higher.
  • Step ups: If investments have gone up, the benefit base “steps up” to the higher amount and is locked in for future retirement income.
  • Cushion for volatility: If the market’s flat or down, clients may receive a bonus to their benefit base—which is also locked in—so they’re still building future income even if their investments perform poorly.
Some guaranteed income riders offer higher payout rates the longer your client keeps money invested without making withdrawals. So waiting longer to take a withdrawal, may mean an increased payout.
Bottom line: VAs may provide a greater benefit the longer a client commits to growth potential for their income within the annuity.

Investing to accumulate assets.

Accumulation-focused VAs are a market-based investment opportunity that may not only increase assets but can also provide unique benefits not found with other market-based options.

No contribution limits.

For starters, investors can purchase a variable annuity with nonqualified money and still benefit from tax deferral. There are no IRS contribution limits on how much nonqualified money can be invested, so it may be a welcome tax-management tool.

Planning a financial legacy.

They also often offer death benefits. No underwriting is involved, so a client who wouldn’t qualify for life insurance can purchase a variable annuity and provide a financial inheritance for their loved ones as an alternative.
Our Principal® Pivot Series VA also offers several legacy planning options, including “stretch planning” and trust-owned annuities. Both options can provide a financial legacy that can last over several generations.

Minimum and maximum age requirements.

There’s no industry minimum age requirement to purchase an investment-oriented annuity. Each issuer sets its own requirement.
For example, the Principal® Pivot Series VA can be offered to clients ages 0 to 85 (or 79 on qualified contracts if your broker-dealer requires the enhanced death benefit).
The minimum age to purchase the Principal® Lifetime Income Solutions II VA is 45; the maximum is 80.

Want to learn more?

Contact your local Principal® representative or support team at 866-309-1623.

Ready to get started?

You can create an investment plan for clients now, and for their future. Learn more about VAs at principal.com. To get started, contact your local Principal® representative or support team. Call us at 866-309-1623.

*Availability dependent on which guaranteed income option is chosen. Annual market gains are automatically locked into the withdrawal benefit base. Lock ins occur on the contract anniversary until the later of age 80 or 10 years after the contract date.

Investing in taxable or tax-deferred vehicles involves risk, and investors may incur a profit or loss in either type of account. Changes in tax rates and tax treatment of investment earnings may also impact comparative results. Investors should consider their personal investment horizon and income tax bracket, both current and anticipated, when making an investment decision, as these may further impact the comparison.

The subject matter in this communication is provided with the understanding that Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Withdrawals prior to age 59½ are subject to a 10% IRS penalty tax. Tax-qualified retirement arrangements, such as IRAs, SEPs, and SIMPLEIRAs are tax-deferred. You derive no additional benefit from the tax deferral feature of the annuity. Consequently, an annuity should be used to fund an IRA, or other tax-qualified retirement arrangement, to benefit from the annuity’s features other than tax deferral. These features may include guaranteed lifetime income, death benefits without surrender charges, guaranteed caps on fees, and the ability to transfer among investment options without sales or withdrawal charges.

Annuity products and services are offered through Principal Life Insurance Company. Principal Variable Contracts Funds are distributed by Principal Funds Distributor, Inc. Securities offered through Principal Securities, Inc., member SIPC, and/or independent broker/dealers. Principal Life, Principal Funds Distributor, and Principal Securities are members of the Principal Financial Group®, Des Moines, Iowa 50392, principal.com.


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This information is educational only and provided with the understanding that Principal® is not rendering consulting, legal, accounting, investment or tax advice. You should consult with appropriate individuals including counsel, financial professional or other advisors on all matters pertaining to business, legal, tax, investment or accounting obligations and requirements.

Insurance products and plan administrative services provided through Principal Life Insurance Co., a member of the Principal Financial Group®, Des Moines, IA 50392.

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