Glossary
Variable annuity
An annuity whose value is invested in market subaccounts, so it can grow or lose money, with optional riders that guarantee income or a death benefit.
Also called: VA, variable deferred annuity
A variable annuity is a contract with an insurer in which you invest money in subaccounts, portfolios similar to mutual funds, and the account value rises or falls with their performance. Growth is tax-deferred until withdrawn. Because owners bear investment risk, variable annuities are securities: they're registered with the SEC, come with a prospectus and are sold only by representatives with both a securities registration and a state insurance license.
Costs are layered: subaccount management fees, a mortality and expense risk charge, administrative fees and optional rider fees. Riders such as a guaranteed lifetime withdrawal benefit or an enhanced death benefit add guarantees on top of the market exposure. Hypothetically, with a 1.25 percent M&E charge, 0.75 percent in fund expenses and a 1.1 percent income rider, total annual costs would be about 3.1 percent of the account value or benefit base. Most variable annuities also carry surrender charges for several years.
Supporters value the guaranteed lifetime income and death benefit features; critics point to high fees and to tax deferral being redundant inside an IRA. Gains are taxed as ordinary income when withdrawn, not at capital gains rates, and heirs don't get a step-up in basis. See variable annuities: how they work, what they cost, who they suit and annuity fees, explained.
Last reviewed October 4, 2026