Mutual Funds
- Money is invested by mutual fund manager.
- Issues 1099 tax form for dividends and capital gains distributed by mutual fund company.
- When sold, profits are taxed as long term/short term capital gain.
- Possible up front sales charge or "load" taken from your initial dollars invested.
- Instant liquidity on your money. No penalties for withdrawing your money (possible charges for Class B shares)
- Choices limited to mutual fund "family". Switching from one fund to another, even in the same family, may be a taxable event.
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Variable Deferred Annuity
- Money is invested by mutual fund manager, managing a mutual fund sub-account. Some are patterned after actual mutual funds.
- Does not issue 1099 tax form
- When sold, profits are taxed at your ordinary income tax rate
- Normally, no up front sales charge.
- Money must stay invested until you reach age 59 ½ . Also, there is a surrender period where if too much money is taken out, a penalty may be assessed
- Can move from one fund to another without incurring 1099 tax form. Some deferred Annuities have different mutual fund families and allow you to move from one family to another without incurring 1099 tax form.
- Offers death benefit guarantee to beneficiary.
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