.jpg)
Individual retirement accounts (IRAs) and annuities offer different paths to retirement security. An IRA provides tax advantages for your retirement savings, while an annuity can guarantee a steady income.
Understanding the unique features and benefits of annuities versus IRAs helps you choose which option best supports your retirement goals. Here's what you need to know.
An annuity is a financial contract between you and an insurance company that converts your deposit into regular payments. The payout structure depends on your contract type. Some start as soon as 30 days after your deposit, while others grow tax-deferred for years.
There are three main types of annuities to choose from:
You can either purchase an annuity directly or contribute IRA funds into these accounts. This flexibility makes annuities versatile tools for retirement planning, whether you're looking for immediate income or long-term growth potential.
Like any financial product, annuities have their own set of pros and cons:
An IRA is a tax-advantaged retirement account that allows you to invest in assets of your choosing, such as stocks, bonds, annuities, and mutual funds.
Just as there are different types of annuities, there are different types of IRAs to suit various financial situations. Traditional IRAs offer tax-deferred growth, meaning you don't pay taxes on your earnings until you make withdrawals in retirement. Your contributions may also be tax-deductible, lowering your current tax bill.
With a Roth IRA, you pay income taxes on your contributions up front, but your money grows tax-free, and you won't pay taxes when you withdraw funds in retirement. This makes Roth IRAs particularly attractive if you expect to be in a higher tax bracket when you retire.
In 2025, you can contribute up to $7,000 to your IRA (or $8,000 if you're 50 or older). While penalty-free withdrawals are typically restricted until age 59½, certain exceptions exist for life events like first-time home purchases or qualified education expenses.
Just like annuities, IRAs have pros and cons to consider before opening an account:
While both of these accounts help build your retirement savings, an annuity isn’t the same as an IRA. Here are seven key differences between the two.
IRAs give you total control over your money — you can choose where to put your funds and change these investments whenever you like.
With fixed annuities, the insurance company manages your money and provides guaranteed rates. For variable and indexed annuities, the insurer may provide a preset list of assets for you to choose — often money market funds.
IRAs focus on long-term savings, typically until retirement age. While you can withdraw funds earlier, you'll usually face penalties before age 59½.
But annuities offer more timing choices. For instance, immediate annuities start paying within 30 days, while deferred accounts grow your money for future use.
IRAs keep things simple: You choose your investments and contribution schedule.
Annuities offer more ways to customize your contract. Fixed annuities provide steady growth, while variable and indexed annuities let you take on more risk for potentially higher gains. You can also add optional features called riders for extra benefits such as inflation protection.
With IRAs, you make investment decisions yourself or work with a financial advisor of your choice.
When you buy an annuity, the insurance company manages your money based on your contract type. While financial advisors can help you choose an annuity, the insurance company ultimately manages your money according to the terms you select.
Annuities, Roth IRAs, and traditional IRAs each have different tax advantages. Traditional IRAs offer tax-deferred growth and may be tax deductible, while Roth IRAs provide tax-free withdrawals in retirement.
On the other hand, most annuities grow tax-deferred but withdrawals are typically taxed as ordinary income.
Traditional IRAs require you to start taking payments at age 73. For Roth IRAs, withdrawals aren’t regulated until the account owner’s death.
Annuities offer more flexibility, generally letting you choose when to start receiving payments according to your contract terms.
IRAs pass directly to your named beneficiaries, who have specific options for withdrawing the money.
Annuities can include death benefit features, so your beneficiaries receive your remaining assets (if any), a preset minimum amount, or another arrangement.
When it comes to retirement savings, there are pros and cons of both annuities and IRAs. To choose between these retirement options, consider the following:
You can also use both options as part of your retirement strategy. For example, an IRA provides growth and flexibility, while an annuity supplies guaranteed income. This combination helps balance different retirement needs while taking advantage of different tax benefits.
An IRA annuity lets you hold an annuity inside an IRA. It combines the tax advantages of IRAs with the guaranteed income of annuities.
However, withdrawals are subject to both IRA rules (including potential early withdrawal penalties before age 59½) and annuity contract terms (such as surrender charges in early years).
You can’t contribute annuity income to an IRA. But the opposite is possible — you can easily contribute IRA funds to purchase an annuity.
If you purchase an annuity with pre-tax dollars — also known as a qualified annuity — you can usually roll those funds over into a traditional IRA without tax implications. But if you buy an annuity with after-tax funds (non-qualified annuity), you generally can’t transfer it into an IRA. And neither type of annuity rolls over into a Roth IRA.
You can typically move funds in the other direction, from an IRA to an annuity, through a direct transfer.
This communication is for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice.
.jpg)
.jpg)
.jpg)
.jpg)
.jpg)
.jpg)
.jpg)