The Investment Scientist

Is a Fidelity Personal Retirement Annuity (FPRA) a Good Investment?

Posted on: July 21, 2013

Fidelity logoIs a Fidelity Personal Retirement Annuity (FPRA) a good investment?

A client of mine recently asked me the above question. He is a high-income business owner who makes close to $1m a year and he has used up all of his available tax-advantaged investment vehicles. He is interested in this Fidelity product primarily because it is tax-deferred.

Now let me start out by saying that I love Fidelity. I custody all of my clients’ assets with them. Their advisor support team is fantastic and without Fidelity, I wouldn’t have been able to build my independent wealth management practice. FPRAs are also cheap compared to other variable annuities out there and if you absolutely have to buy a variable annuity, an FPRA is definitely the way to go. But…. I don’t recommend it.

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The primary selling point of a variable annuity is the so-called tax-deferred growth. Yet, this is not all it’s cracked up to be. You can achieve much (but not full) deferral with a tax-efficient mutual fund, like an index fund or an asset class fund. So in other words, deferral of earning recognition is just not that big of a deal, so don’t let it hook ya!

Herein lies the rub! With an annuity, all the deferred gains and earnings will be taxed at the much higher ordinary income rate, not the lower, long-term capital gain tax rate.

Take my client for example; he is in the 39.5% tax bracket, then factor in the state tax rate of 5.75% and you’ve got quite a number! Comparatively, the long term capital tax rate is only 20%. Why pay 45.25% when you can pay just 20%? And don’t even get me started on the many other tangible and intangible costs of variable annuities, such as early withdrawal penalties, lack of investment choices and hidden investment costs!

If you seriously want to learn about tax-efficient investing, schedule an appointment with me.

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9 Responses to "Is a Fidelity Personal Retirement Annuity (FPRA) a Good Investment?"

Hmmm…I don’t believe the reps mention this tax rate differential.

But what about asset protection? I agree that the low cost variable annuity may not be the most cost efficient way to invest. Certainly your point about tax deferral is a good one. However, the low cost variable annuity is worthy of consideration by investors concerned with asset protection. A low cost VA (without ME or other benefits) can also act as a wrapper that offers creditor protection at a very reasonsble cost. Investors looking for creditor protection (assets not subject to law suits or other judgements for example) that do not want to move assets outside of their estate can find unique value in a low cost variable annuity. For this purpose, the Fidelity Personal Retirement Annuity is a decent option. However, I prefer other annuity providers that offer lower costs and better underlying investment options. For more information, please contact me at:
Keith A. Rhodus
Clare Market Investments, LLC

There are certain federal and state statutes to consider before employing these types of investment strategies. Check with your attorney and tax professional before deciding to invest.


I did not think about the asset protection angle. My client who asked the question was primarily concerned about taxes.

This is an area I need to learn more. Can you point me to some good articles on this subject?


Three things about “asset protection”. First, the reason VA policy is asset protection from creditors is because it is no longer your clients’ money. It now belongs to the insurance company. Your client just gets some income from it, but that is only as good as the assurance of the insurance company. Second, how else can one protect assets? Would a good umbrella liability policy (another insurance policy, I know) provide the same asset protection at a much lower cost? Third, if your client is so worried about needing their assets protected that the client is willing to lose 70% of asset growth (loss of dividends, VA policy fees), then what are the client and the financial planner doing wrong to put those assets in such jeopardy in the first place? Sorry, that question about “asset protection” sounds like a planner commission protection concern.


Very good “tongue in cheek” explanation.

By I believe Keith was not talking about those VA with exorbitant fees – which are the majority of them. I am aware of VA wrapper like Jefferson National who charges $20 fixed fee for VA wrapping your investments.

If indeed the court has recognize VA as protected assets – I am very skeptical by the ay – I owe it to my clients and people who need my help to know.


I concede that these concepts can seem a bit abstruse a first. Jerry’s comments illuminate perfectly how uninformed some investors (and even some planners) can be on this subject. So, I’m happy to provide a little more information.

Annuity protection through state laws is not quite as universal as it is with life insurance, but it does exist. There are a few states which offer no protection at all for annuities outside of an ERISA-qualified retirement plan (i.e., Connecticut, Massachusetts, New Hampshire, Virginia). Interestingly, some of these very same states (i.e., Connecticut and New Hampshire) offer unlimited protection to a beneficiary’s interest in a life insurance policy.

And, in many states, protection of annuity proceeds or value is limited to amounts determined by the state to be reasonably necessary for the support of the owner or his dependents.

But, there are some states which offer unlimited protection of amounts placed in annuities regardless of having dependents as beneficiaries. My home state of Texas is one of them — but so does Florida, Colorado, Illinois, and Michigan.

The following link provides a reasonable summary of State Asset Protection Statutes for Life Insurance, Annuity and IRA emptions:

Click to access APS.50.State.Summary.pdf

For more information, please contact me directly at:

Keith A. Rhodus
Clare Market Investments, LLC

Again, check with your attorney and tax professional before deciding to invest.


Thanks for the link. That’s fabulous!

Best regards,

Michael – Great site and advice, thank you. My dad just passed and left mom (79 yrs old) with an annuity, and the broker is pushing her to transfer the annuity to a Lincoln ChoicePlus VA, with lots of riders (i.e. guaranteed payouts, death benefits, inflation protection).

This VA is really difficult to understand, there are many fees but he feels that this VA has a special patent to allow her to gift portions of the VA to me, her son, without tax consequences (there are over $350K of gains since dad bought it which I would have to potentially deal with some day). The broker is very aggressive, and I assume this is because of the sales commission. Seems like a bad deal to me, but I am a novice when it comes to annuities.

I was thinking that she should 1035 this to the FPRA annuity, since the fees are only .25%. Then she could take 10% out yearly to reduce this as much as possible, as some day I will inherit a big tax problem.



You have a good instinct, I hear “lincoln VA” and I immediately thought of the world “costly.” Check out this article of mine:

I can giver you or her personal advice here, but I think there are two questions to ask:

1. Is a VA best for you mom, who is 79? Would a fixed annuity more suitable for her situation? I don’t know her situation, so I don’t have an answer.
2. Assuming a VA is best for her, FPRA is good, but you also want to check out if Vanguard’s VA offering.

You may want to schedule a 2nd opinion meeting with me on her behalf: the first 30 min is free:

Best regards,

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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