To many people an annuity must sound just like an IRA, but with only maybe a couple of differences. They may be right, but before we make that assumption let’s look at them both to find all the differences.
If you are a retirement investor traditional IRAs and annuities offer similar advantages, which include tax-deferral on any earnings until withdrawal. Both IRAs and annuities also have the same 10% tax penalty for early withdrawal before the age of 59 1. With the traditional IRA and the annuity you must pay taxes on all payments received and on any money withdrawn. However each has different investment features making it appropriate for different types of investors.
The IRA has a contribution limit of $2,000 per person per year. The annuity allows an unlimited number of contributions.
With an IRA payments must begin by the age 70 1. With an annuity you can push the payment date back as far as you like.
Annuities offer a death benefit, which comes with an additional charge. The IRA does not.
With an IRA should you and your spouse die after only receiving a couple of payments the remainder of the balance in the IRA will pass on to your children.
With an annuity should you and your spouse die after only receiving a couple of payments, your children will not be able to get the remainder of the money, unless one of them has been named a beneficiary. When the beneficiary receives the money, taxes can be as high as 47% of the value in the annuity.
Now you have the differences between a traditional IRA and an annuity. There are really not many differences. This could help you choose where you would prefer to invest your money for your retirement years.
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