IRA refers to Individual Retirement Account and it is basically a saving for retirement which also offers tax benefits. The tax breaks that the IRA gives will ensure that you get a larger share of the dollars you save, after retirement. The larger share of dollars that you get is by virtue of the money that is invested in the Annuity vs IRA that is allowed to grow tax-free until you withdraw it at retirement when you will be paying the taxes. Start an IRA to reach your saving goals for retirement.
Table of Contents
Types of IRA’S
There are basically two types of IRA’s
- The traditional IRA– It allows you the benefit of being able to deduct from taxes the amount you are contributing to the IRA. But you will have to pay the taxes when you withdraw your money on retirement.
- Roth IRA– In a Roth IRA you will not be getting a tax deduction while contributing but, you will be allowed to withdraw the money when you are 59 and a half years old would be tax free
Starting an IRA and restrictions
You can start an IRA
- With a bank or a lender, you find comfortable.
- As the primary source for you after your retirement
- If you happen to enjoy employer-matched 401K the IRA would serve as another vehicle of retirement saving
- As you will be able to contribute $5,500 a year.
- As you will have the chance to make the contribution for 2017 until 2018.
Annuity- what is it?
An annuity is also another investment scheme like the IRA which is aimed at helping you secure a steady stream of income on retirement. An annuity is usually a contract between a purchaser and an insurance company. The contract is drawn on payment of either a lumpsum amount called the premium or a series of premium amounts that are paid spread over a number of years. The annuity also offers the choice of whether you wish to take an immediate annuity in which you will receive annuity immediately or deferred annuity, in which you will receive payments in the future. Again it may be limited to a period of time or may continue until death. The annuity differs from IRA in that there is no limit on the contributions you can make.
Types of annuity
Fixed annuities- This refers to a fixed interest the investment will earn when invested with the insurance company. It is a safe investment
Variable annuities– this refers to variable interest on investments depending on the market performance. This involves a certain amount of risk. It is suitable if you can keep the amount invested for a longer period of time.
indexed annuity- This offers scope for market exposure with no risk. They are a sort of hybrid instruments that pay you a amount at present and a variable amount depending on the performance of the investments at a later time period.
This refers to annuity held within an IRA. It means that you will be able to purchase an annuity just like you buy bonds and stocks with your IRA. But, you must note that when an IRA annuity is purchased, you will not be able to transfer the balance of the annuity to another person while you can only transfer the annuity that is already in the IRA of yours to another IRA in your name.
IRA and Annuity
Annuity necessarily need not have to go hand in hand with IRA. But, Annuity provides guaranteed income. Therefore, it may be useful for those who are about to retire shortly.But when you have a number of years for My retirement, the biggest advantage of an annuity is that the money you receive is tax-deferred. But, since you will be able to get that benefit already when you start an IRA, annuities are not recommended. Another deterrent factor against the IRA annuity is that they usually come with a high fee and are also subject to penaltiesin case of early withdrawal before you reach the age of 59.5.