Difference Between Annuity and IRA

Annuity vs IRA

Anyone thinking about their retirement will generally invest in an annuity or an IRA (Individual retirement Account). Though these two are retirement investment schemes, there are certain differences that each one has. A person considering his retirement should always look at the difference between an annuity and an IRA before deciding to invest.

Firstly,  consider the tax benefits provided by either programme. With the IRA, either the full or a portion of the investments is tax deductible. This is not so with an annuity. The IRA also allows tax free withdrawals at the time of retirement.  Though an annuity does not offer tax deduction, it does have the benefit of allowing an IT deferral.

Then there is the difference of annual contributions that a person can make in these two schemes. With the IRA, there is a limit on the annual contributions that one can make, whereas there is no limit on the annual contribution for an annuity.

One advantage of an annuity over an IRA is that they offer life insurance whereas IRAs do not. For this special insurance policy though, a person may have to pay certain fees.

An Annuity can be considered an explicit investment product, which is provided by private insurance companies and which is personified in a contractual form. The IRA, which is regulated by the government, is embodied in certain statutory language.

The annuity comes with more flexibility than the IRA with regard to the withdrawal of money.

Before making an investment, it is always better to weigh the pros and cons of both an annuity and an IRA. You can then make an informed decision once looking at the difference between an annuity and IRA.

Summary

1. With an IRA, either the full or a portion of the investment is tax deductible; this is not so with an annuity. The IRA also allows tax free withdrawals upon retirement.
2. Though annuities do not offer tax deduction, they do offer IT deferral.
3. Annuities offer life insurance whereas IRAs do not. For this special insurance policy, you may have to pay a certain fee.
4. With an IRA, there is a limit on the contributions that one can make, whereas there is no limit on the annual contributions with an annuity.
5. The annuity comes with more flexibility than the IRA with regard to the withdrawal of money.
6. An annuity can be considered as an explicit investment product, which is provided by private insurance companies and which is personified in a contractual form. The IRA, which is regulated by the government, is embodied in certain statutory language.