Annuities in Virginia

Annuities in Virginia get looked at differently than they do in most states, because a lot of Virginians already own guaranteed income. Between the Virginia Retirement System, the federal workforce across Northern Virginia, and military retirees around Hampton Roads, plenty of households retire with a check that already arrives every month for life. So the first question here is not whether guaranteed income is a good idea. It is how much of it you still need.

Start With What You Already Have

Before anyone talks about a contract, write down the income that shows up no matter what the market does. A VRS pension. FERS plus the supplement. Military retired pay. Social Security for one spouse or both. Add it up and compare it to your fixed monthly costs, meaning housing, food, insurance, and healthcare.

If the guaranteed income already covers the fixed costs, an annuity may not be the tool you need, and we will tell you so. If there is a gap, that gap is the number worth solving. An annuity is one way to close it, and it should be sized to the gap rather than to whatever balance happens to be sitting in the rollover account.

The Virginia Tax Picture

Virginia does not tax Social Security benefits, and the top state rate is 5.75%, which most retirees with meaningful income reach. Annuity payments are generally taxable at the state level in the year you receive them, and only the earnings portion of a non-qualified contract is taxable.

The wrinkle worth planning around is the age deduction. Virginians who turn 65 and were born on or after January 2, 1939 may deduct up to $12,000, but that deduction shrinks by one dollar for every dollar of adjusted federal adjusted gross income above $50,000 for a single filer or $75,000 for a married couple. Details are laid out by Virginia Tax.

Since annuity income counts toward that income figure, when you turn the income on can matter as much as how much you take. A deferred contract that stays in accumulation for a few more years, or income started after a large one-time item has cleared, may protect part of the deduction. Run it with your tax preparer before signing anything.

Which Kind Of Annuity Does What

• Multi-year guaranteed annuity. A fixed rate for a set number of years, similar in shape to a bank CD but issued by an insurance carrier and tax-deferred if it is not inside an IRA.
• Fixed indexed annuity. Credits interest tied to an index with a floor of zero in a down year, in exchange for a cap or participation rate on the upside.
• Immediate income annuity. You hand over a lump sum and payments begin right away, for life or for a set period.
• Deferred income annuity. You fund it now and turn payments on later, often at 70 or 75, which buys a larger check per dollar.

Riders can add lifetime income to a deferred contract, and they carry their own fees. Ask what the rider costs annually and what happens to the account value once income starts.

Rules That Protect You In Virginia

Virginia follows a best interest standard for annuity recommendations, which means the agent has to have reasonable grounds to believe the contract fits your situation and has to document the basis for it. You should receive a written disclosure about the agent's role and how they are compensated. If you do not, ask for it.

Every annuity contract issued here also carries a free-look window. The number of days is printed on the first page of the contract. Read it during that window, and if the paperwork does not match what you were told, return it.

There is also a backstop if a carrier fails. The Virginia Life, Accident and Sickness Insurance Guaranty Association generally covers annuity benefits up to $250,000 in present value per person per member company, subject to conditions. That limit is real money, and it is one reason we place business with highly rated carriers and split larger amounts across more than one company when it makes sense.

Questions Worth Asking Before You Sign

• What is the surrender schedule, and what does it cost to get out in year three?
• How much can I withdraw each year without a charge?
• Is the rate guaranteed for the whole term, or does it reset?
• What does my spouse receive if I die first?
• Every fee, in dollars, on one page.

A good answer to all five takes about twenty minutes. If it takes longer than that, the contract may be more complicated than your situation calls for.

How Cornerstone Works With Virginia Families

We start with the income gap, not with a product. If the gap is small, we say so. If a portion of savings belongs in guaranteed income, we compare contracts from several carriers and show you the tradeoffs in plain numbers. Our national annuity coverage page covers the mechanics in more depth, and for households where the goal is passing money on rather than spending it, whole life coverage often does that job better.

If you would like a second set of eyes on a contract you have already been shown, book a time to talk. We will read it with you either way.