A 40-year-old client with a stable income, a mortgage, and two young children is seeking an investment that offers tax-deferred growth for retirement, allows for flexibility in contributions, and provides a death benefit to beneficiaries. Which of the following investment products is MOST suitable for this client's needs?
- AA variable annuity with a guaranteed minimum death benefit rider.
- BA diversified portfolio of exchange-traded funds (ETFs) in a taxable brokerage account.
- CA 529 college savings plan for their children.
- DA Roth IRA.
Show answer & explanationAnswer & explanation
Correct answer: A. A variable annuity with a guaranteed minimum death benefit rider.
A variable annuity offers tax-deferred growth, flexible contributions, and a death benefit feature, aligning well with the client's stated needs for retirement planning with beneficiary protection. ETFs in a taxable account would not offer tax-deferred growth or a death benefit. A 529 plan is for education, not retirement, and a Roth IRA has contribution limits and generally does not offer a death benefit feature like a variable annuity.
Why the other options are wrong
- B. ETFs in a taxable account do not offer tax-deferred growth or a death benefit.
- C. A 529 plan is specifically designed for educational expenses, not retirement income or a death benefit for beneficiaries.
- D. A Roth IRA offers tax-free withdrawals in retirement but has contribution limits and does not typically include a death benefit feature like a variable annuity.
Variable Annuity Suitability (Retirement & Death Benefit)
Variable annuities are suitable for clients seeking tax-deferred growth for retirement, flexibility in contributions, and a death benefit to protect beneficiaries, especially if they have maximized other qualified retirement plans.
- Tax-deferred growth potential.
- Flexible contribution amounts.
- Includes a death benefit feature.
- Suitable for long-term retirement planning.
Memory trick: Tax-deferred growth and a shield for heirs points to a variable annuity.