Annuities 101 – Annuities have been confused with IRA’s for years. I think it might be the “A” in IRA. It is very common to be a little confused about your IRA considering it has changed throughout the years and so have annuities. Are annuities the same as an IRA? A good place to start is to explain how each work and then how each work in relation to each other.
Your IRA is your retirement account. You might also have a joint checking account at the bank or maybe a single checking account. An IRA and and annuity are types of accounts a lot like the checking accounts. Think of it as a account type or designation. Thinking along these lines makes the IRA and the annuity easier to understand.
In this Annuities 101 article will keep it simple. Just think of the annuity as an account designation or a type of account. Visit IRS.GOV for a detailed description of the ins and outs of annuities regulations. Just know that there are rules and you need to be aware of them. The main one to be aware of is that there is a 10% penalty if you take money out of the account before your turn 59 and half. For details refer to the IRS website.
The IRS penalty has nothing to with the companies that hold your investment money for your IRA or annuity. There could also be other fees if you decide to take your money out as well. The annuity company could charge surrender charges or for your IRA you could have back end commissions.
Where it gets confusing is what you put inside of the IRA. If the IRA is an account then what you invest in provides your return. IRA’s 101 – What can you invest in through your IRA? CD’s, bonds, stocks, mutual funds, real estate, pretty much anything that is a paper asset. The most confusing part of this discussion is that the IRA can invest in an annuity.
Remember that the IRA is an account and what is inside the IRA is the investment. Also remember that your IRA can be held at many different kinds of financial institutions. Banks, brokerage firms, investment advisories, and insurance companies can all hold your IRA investment money. That means that your IRA can be invested in an annuity.
Now is a good time for some general investment advice on how to fill up these accounts if you are investing. In general if you can still contribute to your IRA you should max it out first. Then you should invest in an annuity outside of your IRA. You can use an annuity to invest in inside your IRA but just be sure to max out the contributions either way.
During retirement, annuities are a great way to invest but not variable annuities. Your rollover money that comes from your 401k, Simple, or SEP can but used in part to invest in annuities. With the right annuity you could make your retirement money safe, secure, have guaranteed income, have a chance to grow, and be guaranteed by your states guarantee just in case the insurance company ever went out of business. This would let you get off of the stock market roller coaster for good!
So here in annuities 101 we looked the difference between the annuity account and the IRA account. They are not the same but annuities can be part of what your IRA money is invested with inside of the account. We also learned that IRA’s should be filled first and then if you have more to invest annuities are a good option. Later in retirement, investing in annuities inside of your IRA accounts can be very beneficial providing security, safety, and guarantees that other investments do not offer.
To learn more about how to use annuity strategies to guarantee your retirement incomesign up for Keith’s step by step 7 Free Retirement Tutorials or visit his website for Annuity Help Now.