Advertise with Us
Bookmark and Share

Annuity IRA- What Is the Connection?

The world is not as simple a place as it used to be. Once, you would leave school, go and get a job with a company and stay with that company for the rest of your life. If you lived to be old enough to retire, the company would pay you a pension until you died. If you had fought in a war, you would receive a war pension and your wife would receive a war widow’s pension when you died.

These days, things are not so simple. We move around lots of jobs in our lifetimes and live for much longer which has made it financially impossible for companies to shoulder the entire burden of supporting their employees beyond retirement until they die.

With this in mind, many ways of saving for retirement have come into existence over the last 40 years. While some people may still receive pensions from their companies, most people no longer rely on the idea that the company they work for will support them until they die. Instead, people make their own provisions for a comfortable life after retirement.

One of the ways they do this is with Annuity and IRA.

What is an IRA?

IRA stands for Individual Retirement Account. There are several different kinds of individual retirement accounts.

  • Roth IRA - named after Senator William Roth.
  • Traditional IRA - depending upon how it has been setup, a traditional IRA can also be known as a "non-deductible IRA" or a deductible IRA".
  • SEP IRA – allows an employer to make direct contributions into a traditional IRA for their employees.
  • SIMPLE IRA – is like a 401(k) plan, but is simpler and less costly.
  • Self-Directed IRA – allows the owner of the account to make the investment decisions.

Annuity IRA- What is the difference?

There are several ways in which annuity IRA differ.

For instance, all or part of the contributions made to a traditional IRA is normally tax deductible.

Some IRAs allow you to accumulate earnings, while others limit how much money you can put into them each year (annuities, on the other hand, allow you to make as many deposits as you would like).

One of the big differences is that annuities incorporate life insurance and so they guarantee a lump sum payout to your family in the case of your death. This is not the case at all with IRAs.

Meanwhile, annuities tax can be a real drawback for the annuities payments side of the equation.

Annuity IRA – Which is better for me?

Whether you choose annuity IRA is a very personal choice. To figure out what is best for you, it is important to go and talk to your accountant and / or your taxation advisor and / or your financial planner.

They should have all the facts on both annuity payments and IRA payments. They will ask you questions about your retirement plans - like what you would like to do and how much money you think you will need. Some of the questions may be hard to think about – like how long you think you will live. However, these questions are necessary because your advisors need to work out how much money you will need to live in a comfortable way until you die. As you get older you will have many more associated costs, especially in the area of health care. You must make sure you have made provisions for these.

There are benefits and risks associated with both annuity IRA. Annuities tax is a draw back but annuity payments are a good thing. IRAs have other good options that you don’t have with annuity payments.

Whichever you choose should reflect your personal plans for retirement and should reflect the manner in which you are accustomed to living your life.