Variable Annuities Look Pretty Good at Tax Time

Or maybe due to the strong market performance of 2021, you rebalanced your clients’ portfolios to get them more in line with their proper risk/reward profile. What were the tax consequences of that transaction? Or worse yet, did you or your client elect not to rebalance to avoid generating those capital gains? How has that plan worked out thus far?

Which brings me back to my variable annuity. Over the years, I’ve reallocated within the sub-accounts in my variable annuity to either invest more aggressively or take some risk off the table. But since I can do this within my contract, I have never had to worry about the tax consequences of the change. How great is that come tax time?

Now, I must admit that avoiding 1099s for over three decades was not my original goal for this contract. And since I was well below the age of 59.5 for the majority of the years I’ve owned the annuity — therefore making me subject to the 10% penalty on any withdrawals before that age — I didn’t hold a significant percentage of my investable assets in this policy for many years. But that changed when I moved into my 50s. Rather than add to my existing mutual funds, I put new investable assets into my variable annuity.

Even after the 2022 capital gains distributions, most of your clients probably still have too much in unrealized gains to justify selling their mutual funds to reposition their assets within a variable annuity.

But perhaps you can minimize their tax problem going forward by implanting this very simple tax control strategy.

Scott Stolz is a managing director at iCapital Solutions and SIMON Markets.