No Load Annuity: A Low-Cost, Commission-Free Annuity Strategy

When it comes to retirement planning, the fees you pay on your investments can quietly erode decades of growth. Traditional annuities have long been criticized for high commissions, lengthy surrender periods, and opaque fee structures that benefit the salesperson more than the investor.

Enter the no load annuity—a commission-free alternative that puts more of your money to work from day one.

Whether you’re a high-income investor looking for additional tax deferral beyond your 401(k) or a pre-retiree seeking a steady income stream in retirement, understanding how these products work can help you make smarter decisions about your financial future.

It's important to understand an annuity's features—such as guarantees, tax benefits, and investment options—so you can make informed choices for your long-term retirement planning.

In this guide, you’ll learn exactly what no load annuities are, how they compare to traditional load products, and how to evaluate whether one fits your retirement strategy.

Quick Answer: What Is a No Load Annuity?

A no load annuity is an annuity contract that eliminates sales commissions, front-end loads, and back-end fees typically paid to brokers or agents. Instead of compensating a salesperson, these products allow 100% of your principal to be invested from the start, with lower ongoing fees and typically no (or minimal) surrender charges.

No load annuities are usually sold directly by the insurance company or through fee only financial advisors and fee based advisors who charge a separate advisory fee for their services. The issuing insurance company is responsible for guaranteeing the contractual obligations and benefits of the annuity. This distribution model removes the conflict of interest that can arise when an agent’s compensation depends on which product they recommend.

It’s important to understand that “no load” doesn’t mean “no fees.” Investors still pay insurance-related charges (mortality and expense risk fees) and investment management fees on underlying investment options. What’s eliminated are the sales commissions that can consume 3% to 7% of your investment upfront.

Both fixed annuities and variable annuities can be structured as no load, but the term most commonly refers to variable annuity products or fixed indexed annuities designed for advisory platforms.

The Impact of Fees Over Time

Consider a simple comparison:

That 1.50% annual difference in fees translates to nearly $140,000 more in your account value over two decades. This is why understanding the cost structure matters so much for long-term retirement income planning.

How No Load Annuities Work

The primary difference between a no load annuity and a traditional product comes down to two factors: how costs are charged and how the product is distributed.

Instead of paying an agent a commission at the time of sale, no load annuities are sold through fee based annuity platforms where your registered investment adviser charges a transparent advisory fee—typically 0.50% to 1.00% of contract value per year. This fee is separate from the annuity’s internal costs and is clearly disclosed.

Typical Fee Components

When you purchase a no load annuity, you’ll encounter several types of charges:

• Mortality and Expense (M&E) Charges: These cover the insurance company’s risk of providing guarantees. In no load products, M&E fees often range from 0.25% to 0.60% annually—significantly lower than the 1.00% to 1.50% common in traditional annuities.

• Administrative Fees: Either a flat annual dollar amount (e.g., $30-$50) or a small percentage of account value.

• Subaccount Expense Ratios: The underlying mutual funds or investment options have their own expenses, typically 0.10% to 0.80% depending on whether they’re index funds or actively managed strategies.

• Optional Rider Costs: Features like a guaranteed income rider or enhanced death benefit options carry additional cost, usually 0.50% to 1.25% per year.

Liquidity Features

One of the most attractive aspects of no load annuities is their flexibility:

• Many advisory-platform annuities offer 100% free withdrawals from day one

• No surrender charges in most true “no load” contracts

• Contributions are flexible—you can add premiums at any time up to insurer limits

• Standard IRS early withdrawal penalties (10% additional tax) still apply if you withdraw funds early before age 59½

This liquidity stands in stark contrast to traditional annuities, where surrender charges might start at 7% and decline over a 10-year period.

Key Advantages of No Load Annuities

The core benefits of no load annuities center on lower costs, tax deferred growth, transparency, and flexibility. Let’s examine each.

Lower Cost Structure

Typical all-in costs for no load variable annuities often fall in the 0.60% to 1.50% annual range. Compare that to 2.00% to 3.50% for many legacy commission-based products. This difference compounds dramatically over time.

Some modern no load products from providers like Ameritas Life Insurance Corp offer base contract costs as low as 0.20% annually before adding investment option prospectuses and advisory fees.

Tax-Deferred Growth

Inside a no load annuity, interest, dividends, and capital gains compound without annual taxation. You won’t receive 1099 forms each year on internal earnings—taxes are deferred until you take withdrawals.

This tax deferral can meaningfully boost long-term balances, particularly for investors in higher tax brackets who plan to withdraw funds in retirement when their income taxes may be lower.

Transparency

With no load annuities, you see exactly what you’re paying:

• Advisory fees are disclosed separately from product charges

• Statements typically show fees in both dollars and percentages

• No hidden commissions embedded in the product structure

• Clear prospectus disclosure of all costs

Investment Flexibility

Most no load variable annuities provide access to 40 to 100+ investment options from established fund families. You can reallocate between subaccounts without triggering current tax consequences—a significant advantage for active investment strategy adjustments.

Alignment with Fee-Only Planning

No load annuities are compatible with fee only financial advisors who operate under a fiduciary standard. When your adviser isn’t earning a commission on product sales, their investment advice is more likely aligned with your investment objectives rather than their compensation.

Tax Deferral and Long-Term Growth Potential

No load annuities are tax-deferred vehicles, not tax-free. This distinction matters for understanding how these products fit into your overall retirement portfolio.

How Tax Deferral Works

When you invest in a non-qualified (after-tax) annuity:

• No annual 1099s on internal earnings

• Taxes are triggered when money is withdrawn or the contract is annuitized

• Gains grow uninterrupted by annual tax drag

• You maintain more capital working for you each year

A Simple Illustration

Consider this comparison for a $200,000 investment over 20 years:

Assumes 24% marginal tax bracket on annual gains in taxable account.

The tax efficiency of deferral allows more of your money to compound each year.

LIFO Taxation Rules

For nonqualified contracts, the IRS uses “last-in, first-out” (LIFO) treatment:

• Earnings are withdrawn first and taxed as ordinary income

• After all gains are distributed, principal is returned tax-free

• This differs from qualified plan accounts where all distributions are typically taxable

State Tax Considerations

Some states provide partial exclusions on annuity income or treat it differently than federal rules. Check your state’s specific provisions—this can affect the net investment income you retain from distributions.

Comparison to Qualified Accounts

If you hold an annuity inside an IRA or 401(k), the annuity doesn’t add extra tax deferral—the qualified plan already provides that. However, the annuity may still offer valuable insurance features like guaranteed lifetime income or death benefit protections.

Cost Structure: What “No Load” Really Means

Let’s be clear: “no load” removes sales commissions but does not mean “no fees.” Understanding the complete cost picture is essential for making informed investment decisions.

Main Charges to Review

Before purchasing, examine the product prospectus for:

Some modern no load variable annuities have total base contract costs (excluding advisory and rider fees) as low as 0.20% to 0.60% per year.

Advisory Fees Are Separate

Remember that advisory fees charged by your investment adviser representative are in addition to annuity product charges. A typical fee structure might look like:

• Annuity base costs: 0.45%

• Subaccount expenses: 0.35%

• Advisory fee: 0.85%

• Total all-in cost: 1.65%

This is still substantially lower than many traditional products but should be evaluated as a complete package.

Confirm Surrender Terms

Even among “no load” products, some may have short surrender periods or restrictions. Always confirm:

• Whether any surrender charges apply

• If there’s a waiting period before full liquidity

• Any annual withdrawal limits

Before replacing an existing annuity, compare the all-in “expense drag” on returns between your current contract and any new no load option. Factor in any surrender charges you’d pay on the existing policy.

Investment and Product Types Available as No Load Annuities

Several annuity structures can be offered in a no load format, each with different risk/return profiles suited to various investor needs. When comparing variable, fixed, and indexed no load annuities for retirement planning, it is essential to understand an annuity's features, such as guarantees, tax benefits, and available income options, as these characteristics play a key role in meeting long-term financial goals.

No Load Variable Annuities

These provide access to diversified subaccounts—often a mix of index funds and actively managed strategies. Key characteristics:

• Investment risk falls on the contract owner

• Market risk including possible loss of principal

• Highest long-term growth potential of annuity types

• Often 40-100+ underlying investment options from providers like Vanguard, Dimensional Fund Advisors, and American Funds

Variable annuities are suitable for investors with longer time horizons who can tolerate stock market volatility.

No Load Fixed Indexed Annuities

These offer a middle ground between fixed and variable products:

• Principal protection against market losses

• Returns credited based on index performance (S&P 500, etc.)

• Upside limited by caps, participation rates, or spreads

• No direct stock market ownership—you don’t own the index

Fixed indexed annuities may appeal to investors seeking income potential with downside protection.

No Load Fixed Annuities (MYGAs)

Multi-year guaranteed annuities work similarly to bank CDs:

• Guaranteed interest rate for a fixed term (3, 5, 7 years)

• Principal protection with predictable growth

• Low complexity and easy to understand

• Limited upside compared to variable or indexed products

Matching Product to Goals

Align your choice with your time horizon, risk tolerance, and whether you need guaranteed income features.

Commission-Free vs. Traditional Load Annuities

Understanding the differences between commission-free advisory annuities and traditional commissionable products helps clarify why cost structure matters so much.

How Traditional Load Annuities Work

Traditional load variable annuities typically:

• Pay agents up-front commissions of 3% to 7%

• Impose surrender charges starting at 5% to 7%, declining over 5 to 10 years

• Include higher ongoing M&E fees to recoup commission costs

• May limit investment option changes or charge fees for switches

These broker dealers and commissioned agents have financial incentives that may not always align with your best interests.

How No Load Annuities Differ

Commission-free products spread advisor compensation through explicit advisory fees on assets:

• Transparent fee structure with no hidden costs

• No surrender penalties in most advisory-platform products

• Lower ongoing expenses that compound to significant savings

• Reduced potential conflicts of interest

Liquidity Comparison

1035 Exchange Opportunities

If you currently own a high-cost traditional annuity, you may be able to replace it with a no load annuity through a tax-free 1035 exchange. This allows you to move from one annuity company to another without triggering income taxes on gains.

Before replacing any existing contract, have an independent adviser perform a side-by-side comparison of guaranteed benefits, fees, and riders. Some older contracts have valuable features that may be worth keeping despite higher costs.

Using No Load Annuities in Retirement Planning

No load annuities serve as tools to manage longevity risk, tax deferral, and legacy goals within a broader retirement plan. They’re not stand-alone solutions but components of a comprehensive retirement strategy.

Accumulation-Focused Use Cases

For high-income investors who have already maximized contributions to their qualified plan accounts (401(k), 403(b), IRA), no load annuities provide:

• Additional tax deferred growth beyond contribution limits

• A tax-deferred “sleeve” for tax-inefficient investments like bonds or actively managed funds

• Flexibility to access funds without the restrictions of retirement accounts

Income-Focused Strategies

As retirement approaches, no load annuities can create guaranteed income through a variety of income options designed to help ensure a steady income during retirement. These income options include:

• Annuitization: Converting the account value into a steady income stream for life

• GLWB Riders: Optional guaranteed income rider features that promise defined payouts regardless of market performance

• Systematic withdrawals: Taking regular distributions while maintaining control of the contract value

Portfolio Construction Role

Financial advisors often use no load annuities to:

• House tax-inefficient asset classes (bonds, REITs) in a tax-deferred wrapper

• Create a “paycheck replacement” income floor alongside Social Security and pensions

• Provide guaranteed income that allows more aggressive allocation of remaining assets

Example: Pre-Retiree Strategy

Consider Sarah, age 58, with:

• $500,000 in 401(k)

• $300,000 in taxable brokerage account

• Expected Social Security of $2,500/month at age 70

Sarah allocates $150,000 of her taxable assets to a no load variable annuity with a GLWB rider. At age 70, she begins taking lifetime income of approximately $9,000/year from the annuity, supplementing her Social Security for a combined income floor of $39,000 annually—before touching her 401(k).

Death Benefit Features

No load annuities often include death benefit options that support estate planning:

• Return-of-premium death benefits (beneficiaries receive at least what you invested)

• Step-up features that lock in gains periodically

• Enhanced death benefits for additional cost

These guarantees depend on the issuing insurance company’s claims paying ability.

Tax Rules, Advisory Fees, and IRS Treatment

Understanding how advisory fees and withdrawals are treated for tax purposes is essential for anyone considering a no load annuity.

IRS Guidance on Advisory Fees

The IRS has issued Private Letter Rulings indicating that certain advisory fees paid directly from a non-qualified variable annuity may be treated as non-taxable “qualifying withdrawals” up to a specified annual percentage of net asset value—typically up to 1.5% of contract value per year.

However, this treatment is fact-specific and depends on:

• How the insurer structures the fee withdrawal

• Whether fees exceed the permitted threshold

• The specific policy issuer’s administrative procedures

Do not assume all fees deducted from an annuity are automatically tax-free. Amounts above the threshold, or fees that don’t meet IRS criteria, may be treated as taxable distributions in the year withdrawn.

Standard Tax Rules

For non-qualified annuities, remember:

• Earnings are taxed as ordinary income when withdrawn

• LIFO treatment means gains come out first

• 10% federal additional tax applies to withdrawals prior to age 59½ (with limited exceptions)

• No required minimum distributions for non-qualified annuities (unlike IRAs)

Qualified Plan Annuities

When annuities are held inside IRAs or other qualified accounts:

• All distributions are taxable (not just gains)

• RMD rules apply starting at age 73 (as of current law)

• The annuity’s features—not its tax treatment—are the primary benefit

Recommendation

Coordinate with your CPA or tax adviser before setting up fee billing from an annuity contract. The financial services industry continues to evolve on this topic, and proper structuring can help you avoid unintended taxable events.

Evaluating No Load Annuity Providers

The insurance company’s financial strength and product design matter as much as low fees. Evaluating no-load annuity providers involves assessing the financial strength and claims-paying ability of the issuing insurance company. An annuity is only as good as the insurer’s ability to honor its guarantees decades from now.

Financial Strength Ratings

Focus on carriers with strong independent ratings:

Companies like Pacific Life Insurance Company, Ameritas Life Insurance Corp, and other established life insurance company providers have long operating histories and solid financial obligations records.

Investment Option Quality

Evaluate the breadth and quality of underlying investment options:

• Low-cost index funds from providers like Vanguard

• Institutional-class active strategies (lower expense ratios than retail shares)

• Diversified asset classes including U.S. equity, international, bonds, and alternatives

• Access through platforms like DPL Financial Partners or affiliate Ameritas Investment Company

The Ameritas Advisor No-Load Variable Annuity, for example, offers over 70 investment options from multiple fund families.

Disclosure Quality

• Clear, concise prospectuses that explain all fees

• The annuity's features, including guarantees, tax benefits, and the specific characteristics of variable, fixed, and indexed annuities, should be spelled out in plain language in the prospectus

• Client-friendly statements showing fees in dollars

• Easy-to-understand rider descriptions

Technology and Access

Modern no load annuities should offer:

• Digital account access and online statements

• Integration with advisory platforms and financial planning software

• Mobile-friendly reporting tools

• Clear historical performance data with net asset value tracking

Remember the Source of Guarantees

All guarantees—income, death benefits, principal protection on fixed products—depend on the life insurance company’s claims paying ability. These are insurance products, not bank deposits, and are not backed by FDIC or any government agency. The insurer is solely responsible for meeting its contractual promises.

Risks, Limitations, and Common Misconceptions

No load does not eliminate investment risk, interest rate risk, or longevity risk. Understanding these limitations helps set appropriate expectations.

Market Risk in Variable Annuities

Variable no load annuities are subject to market volatility and can lose value, particularly over short time horizons. Unlike fixed annuities, there’s no principal protection—your account value fluctuates with the performance of underlying subaccounts.

This investment risk makes variable annuities unsuitable for money you may need in the next 5 to 10 years.

Fixed Indexed Annuity Trade-offs

While fixed indexed annuities offer principal protection, they also:

• Cap upside through participation limits, caps, or spreads

• May provide lower returns than direct stock market investment in strong markets

• Have more complex crediting methods that require careful study

Common Misconceptions

Misconception: Annuity income is tax-free. Reality: Most distributions are taxed as ordinary income, not capital gains. This can mean higher tax rates on withdrawals compared to long-term capital gains treatment in taxable accounts.

Misconception: “No load” means “no fees.” Reality: You still pay M&E charges, administrative costs, subaccount expenses, and advisory fees. “No load” specifically refers to the absence of sales commissions.

Misconception: All annuities lock up your money for years. Reality: Many no load annuities offer 100% liquidity from day one with no surrender charges. However, IRS early withdrawal penalties may still apply before age 59½.

Hidden Restrictions

Even “no load” contracts may have:

• Annual withdrawal limits before certain rider benefits vest

• Waiting periods for guaranteed income benefits

• Restrictions on investment option changes

Always carefully read the prospectus and contract. Discuss liquidity needs and time horizon with your adviser before committing funds to any annuity.

How to Decide if a No Load Annuity Fits Your Situation

No load annuities are one option among many for tax-efficient accumulation and retirement income. They’re powerful tools for the right situation but not universally appropriate.

Key Suitability Questions

Ask yourself:

Who Benefits Most

High-income investors who have maximized contributions to retirement plans and hold large taxable accounts often benefit most from the additional tax deferral. The tax efficiency compounds over time, potentially helping clients achieve significant wealth accumulation.

Who Might Look Elsewhere

• Investors needing access to funds within 5 years

• Those in low tax brackets with limited benefit from deferral

• Investors seeking simplicity over flexibility

• Anyone uncomfortable with investment experience requirements of self-directed options

Work with a Fiduciary

The best approach is working with a fee-only or fee based fiduciary adviser who can integrate the annuity into a comprehensive financial plan. An annuity should complement your other assets—Social Security, pensions, taxable investments—not exist in isolation.

Your adviser can help you evaluate whether guaranteed income features are worth the optional benefits costs, or whether a simpler low cost approach better serves your financial goals.

Final Comparison Checklist

Before making a final decision, compare several no load contracts side-by-side:

• [ ] All-in annual costs (M&E + administrative fees + subaccount expenses + advisory)

• [ ] Guarantee features and rider costs

• [ ] Flexibility and liquidity terms

• [ ] Investment option quality and breadth

• [ ] Insurer financial strength ratings

• [ ] Death benefit options and costs

The right no load annuity can provide meaningful tax advantages, income potential, and financial security in retirement. Take the time to find the contract that aligns with your specific situation, and don’t hesitate to consult with qualified professionals before committing your retirement savings.

Key Takeaways

• No load annuities eliminate sales commissions, allowing 100% of your principal to work for you from day one

• “No load” still includes fees—M&E charges, fund expenses, and advisory fees—but total costs are typically 1% to 1.5% lower annually than traditional products

• Tax deferred growth compounds over time, potentially adding tens of thousands to your retirement balance

• Variable, fixed indexed, and fixed annuities are all available in no load formats for different risk tolerances

• Guarantees depend on the insurance company’s claims paying ability, not government backing

• Work with a fee-only fiduciary adviser to integrate any annuity into your broader retirement strategy