The Basics:
First, a primer. A variable annuity is basically a tax-deferred investment vehicle that comes with an insurance contract, usually designed to protect you from a loss in capital. Thanks to the insurance wrapper, earnings inside the annuity grow tax-deferred, and the account isn't subject to annual contribution limits like those on other tax-favored vehicles like IRAs and 403(b)’s. Wycliffe members have the ability to save in both a non-qualified variable annuity, or the 403(b) at Lincoln Alliance. Members can choose from a menu of mutual funds, which in the variable annuity world are known as "sub-accounts". Or members can opt to invest in the fixed investment that will guarantee that your principle will never go down by guaranteeing a rate of return. Withdrawals made after age 59 1/2 are taxed as income. Earlier withdrawals are subject to tax and a 10% penalty.
Fees, Fees and More Fees:
Variable annuities are notorious for the fees they charge. Indeed, the average annual expense on variable annuity sub-accounts currently stands at 2.08% of assets, according to Morningstar. (This figure includes fund expenses plus insurance expenses.) The average mutual fund, on the other hand, charges just 1.38% and the average expenses of the American Funds investments are even lower at 0.66%. The Lincoln 403(b) and non-qualified investments through Wycliffe were designed for the members to take advantage of the fixed guaranteed option, not the sub-accounts. Contact FMN if you are considering using the sub-accounts.