Roth IRA into a variable annuity?

A friend of mine is talking about moving some funds he has in an IRA into a variable annuity with a guaranteed return of at least 6%. His reckoning behind the move is this: He believes the stock market is going to give negative returns for some time to come, so the guaranteed bottom will help insult him from that, PLUS since it's a Roth his distributions will be tax free. He understands that variable annuities are fee-heavy compared to normla mutual funds, but believes it's worth the extra cost to insure his money against future looses this way.

Am I missing something here? Is it really possible to have a Roth-type arrangement in a variable annuity that guarantees a certain minimum return AND allows for tax free distributions just like a regular Roth IRA does? It seems to me that if this were true lots of people would be doing this, but I don't see a whole lot of references to this out there. Why do a normal variable annuity where the distributions are taxed at normal income rates if this is possible?

Thanks!

A friend of mine is talking about moving some funds he has in an IRA into a variable annuity with a guaranteed return of at least 6%.If the annuity GUARANTEES at least 6%, it is not in a variable account. The variable annuity may have FIXED option within it, but it is doubtful that such an account would be offering 6% in this environment. FIXED accounts in most varibale annuities are paying around 3% these days. Are you sure it's not an INDEXED of FIXED annuity?


Am I missing something here? Is it really possible to have a Roth-type arrangement in a variable annuity that guarantees a certain minimum return AND allows for tax free distributions just like a regular Roth IRA does? It seems to me that if this were true lots of people would be doing this, but I don't see a whole lot of references to this out there. Why do a normal variable annuity where the distributions are taxed at normal income rates if this is possible?Of course it's possible. The "Roth IRA" designation supercedes regular annuity tax treatment. In other words, it does not matter what you put into your Roth IRA (annuity, mutual funds, Cds, stock, stc.). The fact that it is designated as a Roth allows the same tax advantages regardless of how it is invested.

Many people DON'T do this because of the additional fees and the possibility of surrender charges in the early years. If preservation is a goal and you will hold it past the surrender period, there is less concern regarding these factors. There is also a perceived (which ultimately means real) bias against variable annuities in the mainstream and they are often misunderstood. The primary reason to use a variable annuity for retirement accounts just happens to be preservation of capital.