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.
IRA's are retirement accounts.
You might have a joint account at the bank, a business account, a single account, or maybe even a custodial account for a child.
All of these examples are types of accounts.
If you think of your IRA as a type of account it gets a little easier to understand.
For annuities 101, annuities are also an account designation like the IRA, single, joint accounts, and business accounts.
The detailed rules are different but one of the main rules is the same.
You should be 59 and a half before taking money out or you will face a 10% IRS penalty.
IRS.
gov will have all of the detailed rules if you are interested.
The penalties have nothing to do with the actual company you have your IRA or annuity invested through.
There could be additional fees to take money out early.
The fees would show up as commissions, back end fees, or surrender charges.
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.
After retirement, annuities become a much better way to invest - not variable annuities.
Imagine if you could use your IRA money which also includes your 401k, Simple, or SEP rollover money to invest in an annuity.
You could secure your retirement to never go down, provide guaranteed income, have the potential for growth, insure your retirement money through state guarantees in case the insurance company goes out of business, and get off 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.