Annual income taxation, low investment returns.

In its accumulation phase, a deferred variable annuity offers tax deferral and investment options across many asset classes. In its optional distribution phase, it offers lifelong income as a fixed amount, a changing amount based on underlying performance of chosen investment options, or a combination of the two. Owners can move money among investment options without reporting gains or losses to the IRS, and features like automatic rebalancing are provided without charge. Policyholders are not required to take minimum distributions beginning after age 70 1/2, as with qualified accounts.

Anyone who could benefit from long-term deferral of taxes, the convenience of reallocating assets, and reduction of investment risk. Someone needing to plan a retirement income.

People who have not yet fully funded their qualified plans at work, such as 401(k) plans, or an individual IRA or Roth IRA. Investors intending to hold stock funds since under current tax law, dividends and most capital gains are taxed at 15%, while withdrawal from annuities are taxed at ordinary income rates. People who want to transfer wealth, as death benefits in excess of the cost basis are taxable as ordinary income.

Since it works best as a long-term investment, a variable annuity is best bought early in life with money left over after funding IRAs and other qualified plans. Immediate variable annuities may be suitable for older buyers.

Single premium or flexible premium. Annuities in qualified plans are often funded through payroll deductions.