Many in the variable annuity industry have been telling customers this all along: One of the greatest advantages of owning variable annuities is that you can move your investments within your VA between stock, bond, money market and fixed accounts, all with “no current taxation.”
Today, industry statistics are proving that point emphatically.
Recent figures show that VA investors moved more than $15 billion out of equity subaccounts in July 2002. What happened to those dollars? Most experts agree that those liquidations were recaptured in bond and money market subaccounts and, increasingly, in fixed accounts. In addition, net exchange activity out of equity funds and into other funds in the same fund family rose dramatically in July. (Source: Investment Company Institute, Washington, D.C.).
The bottom line: Investors who, over the past years, purchased VAs that have both fixed and variable subaccounts are counting themselves among the fortunate.
Not only can they make tax-free exchanges among fixed and variable options in their VAs; they can make them in both directions–out of variable investment options and back. Those who saw the wisdom of owning such VAs have asset allocation flexibility today, which they can exercise without current income tax consequence.
VA investors can also take advantage of rebalancing programs to stay on track with their asset allocation plan, which is typically designed to increase expected return and reduce risk. In fact, many VAs today allow investment professionals to provide valuable asset allocation models and periodic portfolio rebalancing to the client. Once again, rebalancing, like other annuity subaccount transfers, occurs without current income tax consequences.
That is the kind of flexibility that makes it possible to change strategies when investors needs or objectives change, or when world events cause clients to rethink their risk tolerance.