Bruce's Best Annuities.

WHAT ARE ANNUITIES?

First of all, Annuities are purchased from insurance companies because they have a small amount of life insurance, which allows the annuity to offer tax-deferral and death benefits. The tax deferral benefit works much like an IRA account where growth and earnings are tax deferred until withdrawal, which then comes out and is taxed as ordinary income. Because annuities are retirement vehicles, like an IRA account, there is a 10% penalty for withdrawals of earnings before the age of 59½.

There are two basic types of annuities, fixed and variable. A fixed annuity is, in effect, a loan you make to an insurance company. In return, the insurance company guarantees the return of your principal but generally does not guarantee the amount of interest you will receive. A variable annuity allows you to invest among a variety of investment options (sub-accounts) inside the annuity that are managed just like mutual funds and therefore receive returns similar to any regular mutual fund.

Many financial planners are now using annuities inside IRA accounts even though the IRA account already has a tax deferral feature. The reason for this is that many annuity companies are offering very attractive living and death benefits, which is essentially a guarantee from the annuity company on your principle and in many cases much more then your original principle. This is especially comforting for investors that hold variable annuities and have aggressive investment options inside the annuity.

HOW TO CHOOSE AN ANNUITY

You want to look at the strength and quality of the life insurance company offering the annuity. This is important since they are offering the living and death benefit guarantees. The investment options offered inside the annuity are also very important. Choosing a variable annuity is much like picking a mutual fund. You will want to study the investment options by looking at the management of these sub-accounts, their investment philosophy, and their track records. An easy way of doing this is to look at the track record of the mutual fund equivalent to the annuity's variable sub-accounts.

ANNUITY SUB-ACCOUNTS CAN OFTEN OUTPERFORM THEIR MUTUAL FUND EQUIVALENTS

Many very well known and respected Mutual Funds have identical versions of themselves that are managed by the same manager, invest in the same underlying assets, and have the same objective. These virtually identical versions are used in variable annuities as the investment options and are only available to investors who purchase the annuities that use them. So, technically they are not "mutual funds", but instead they are referred to as variable annuity sub-accounts. Therefore, we will refer to the "real" mutual funds that these variable annuity sub-accounts are mimicking as the "mutual fund equivalent" or "counterpart". Variable annuity sub-account managers have a couple of advantages over the mutual fund counterpart that the same fund manager manages. The first advantage is that the pool of money in a variable annuity fund is usually much smaller then the mutual fund counterpart. This allows the manager to move money around in the fund faster and easier and therefore be more effective with the funds assets. Another advantage is a more stable money flow. Since annuities are long term retirement vehicles that are subject to early withdrawal penalties from the IRS and surrender fees from the annuity company, money does not flow in and out as rapidly as a mutual fund. During volatile markets, money flows in and out of mutual funds even more rapidly and can create hardships for the manager by forcing him to liquidate at losses or buy stocks when the market is overpriced. These scenarios can allow the manager on a variable annuity sub-account to more effectively manage the money in his fund the way he wants to and get a better return then if he was managing your money in the mutual fund counterpart.

ANNUITY HIGHLIGHTS

· Annuities can be a better investment than mutual funds for many investors.

· Annuities are used primarily for retirement planning and should be considered only as a long-term investment.

· Use only variable annuities; their payouts vary with how well the annuities perform.

· Variable annuities have investment options that are very similar to mutual funds, and you also get a tax deferral and a death benefit guarantee from the annuity company.

· Annuities can cut your taxes dramatically.

If you would like to find out if annuities are an appropriate investment for you, call my office (801-486-9000 or 800-422-9997) we will arrange a time for us to talk. I look forward to our discussion.