Both individual retirement accounts (IRAs) and annuities provide tax-advantaged ways to save for retirement, but there are distinct differences between the two. For one thing, an IRA is not in itself an asset, it's a vehicle for holding financial assets—stocks, bonds, mutual funds. In contrast, annuities are assets—specifically insurance products, designed to generate income.
KEY TAKEAWAYS
- Both IRAs and annuities offer a tax-advantaged way to save for retirement.
- An IRA is an account that holds retirement investments, while an annuity is an insurance product.
- Annuity contracts typically have higher fees and expenses than IRAs but don’t have annual contribution limits.
- The tax treatment of your annuity payments depends on whether you bought the annuity with pre- or after-tax funds.
- Buying and holding an annuity within a Roth IRA can avoid taxation of annuity payouts.
