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Own an inherited annuity? Stretch your assets with a low-cost, tax-efficient option

June 22, 2017

If you inherit an annuity contract, one of the most important decisions you need to make is how you'll claim the assets.

If you don't need the inherited assets right away and want to minimize immediate tax implications, consider taking a stretch distribution. This option allows you to take annual distributions from an annuity over your life expectancy, which limits your short-term tax liability.

While you take distributions, the remaining assets in your annuity stay invested, giving your assets continued opportunity to grow. And if you need to withdraw more than your annual distribution in any given year, you can access your funds without penalty.

Consider costs

Costs count because they can eat into your investment return—especially over the long term if you decide to take a stretch distribution. Get the most from your inherited annuity by choosing a low-cost Vanguard Variable Annuity.

With an average expense ratio of 0.54%, the Vanguard Variable Annuity's costs are more than 70% below the annuity industry average of 2.26%. This difference can save you an average of $1,700 a year in fees for every $100,000 you invest.

Annuity chart

*Source: Morningstar, Inc., as of December 2016. The Vanguard Variable Annuity has an average expense ratio of 0.54%, versus the annuity industry average of 2.26%; excludes fees for optional riders. Actual expense ratios for the Vanguard Variable Annuity range from 0.44% to 0.71%, depending on the investment allocation. The expense ratio includes an administrative fee of 0.10% and a mortality and expense risk fee of 0.19%. The expense ratio excludes additional fees that would apply if the Return of Premium death benefit rider or Secure Income (Guaranteed Lifetime Withdrawal Benefit) rider is elected. In addition, contracts with balances under $25,000 are subject to a $25 annual maintenance fee.

Use our deferred variable annuity cost calculator to see if you're paying too much for your variable annuity, or call 800-873-0201 for a free assessment of your current annuity. Our annuity specialists don't work on commission, so you'll get an unbiased evaluation with no obligation.

The Vanguard Variable Annuity offers a diverse lineup of stock, bond, and money market portfolios and has no commissions or purchase fees. You can exchange money tax-free among portfolios without incurring transaction fees, and there's never a surrender charge if you decide to move your contract.

Switch to the Vanguard Variable Annuity

We know annuities

Call Vanguard Annuity and Insurance Services at 800-873-0201 to speak with a licensed, noncommissioned specialist.

If you decide to move your annuity to Vanguard, we can answer your questions and support you every step of the way.

The Vanguard Variable Annuity, which offers a stretch option, is issued by Transamerica Premier Life Insurance Company and, in New York State only, by Transamerica Financial Life Insurance Company.

If another provider holds your annuity, you may be able to transfer it to Vanguard without tax liability. (This is called a 1035 exchange.)

To determine if you can transfer your annuity to Vanguard, give us a call at 800-873-0201 between 8 a.m. and 8 p.m., Eastern time to speak with a licensed, noncommissioned annuity specialist.

Notes:

  • This material was prepared for general distribution. It is being provided for informational purposes only and should not be viewed as an investment recommendation. If you need advice regarding your particular investment needs, contact a financial professional.
  • Variable annuities are long-term investment vehicles designed for retirement purposes and contain underlying investment portfolios that are subject to market fluctuation and investment risk, including the possible loss of the money you invest.
  • For more information about the Vanguard Variable Annuity, visit vanguard.com or call 800-873-0201 to obtain fund and variable annuity contract prospectuses. Investment objectives, risks, charges, expenses, and other important information about the products are contained in the prospectus; read and consider it carefully before investing.
  • If you take withdrawals from a variable annuity prior to age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.
  • Before making the decision to switch to another annuity, including the Vanguard Variable Annuity, you should consider all costs—such as annual maintenance fees, surrender charges, fees for optional riders and death benefits—and the financial strength of the insurance carrier.
  • The Vanguard Variable Annuity is a flexible-premium variable annuity issued by Transamerica Premier Life Insurance Company, Cedar Rapids, Iowa (NAIC No. 66281), and in New York State only, by Transamerica Financial Life Insurance Company, Harrison, New York (NAIC No. 70688). Form No. VVAP U 1101 (in Florida, Form No. VVAP U 1101 (FL), and in New York, VVA NY 0208(R13)), without agent representation. Policy and rider form numbers may vary by state and may not be available in all states. The Vanguard Group administers the Vanguard Variable Annuity for the issuer. Its variable annuity and investment costs rank among the lowest in the industry, according to Morningstar, Inc., December 2016. The Vanguard Group, Transamerica Premier Life Insurance Company, and Transamerica Financial Life Insurance Company do not provide tax advice. Investors are encouraged to consult a tax advisor for information on how annuity taxation applies to their individual situations.
  • This article is not approved for advertising in Oregon and may not be approved for Georgia, Mississippi, or Oklahoma.
  • Product guarantees are subject to the claims-paying ability of the issuing insurance company.
  • This piece is not intended to be tax, investment, or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax investment and legal advisors regarding their particular situation and the concepts presented herein.

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