Buying an Annuity Inside an IRA
Many people question whether it is worth purchasing an annuity inside an IRA account. There are many features of annuities that make it seem as if it would be sensible to purchase them within an IRA. Let's look at the four primary features of annuities and put them into context of purchasing within an IRA account.
- Income Deferral
Income deferral of an annuity is irrelevant inside an IRA or other type of retirement account. IRAs already provide for a deferral of income. These distributions are governed by Government law for retirement plans and not for general annuities' provisions. There are no real income deferral bonuses by purchasing an annuity within an IRA or other retirement plan - if your retirement advisor is giving you advice based on this, it's best to find a new advisor.
- Beneficiary Designation
Beneficiary designation is also another non-reason for purchasing an annuity within an IRA. IRAs and retirement plans already provide these designations outside of probate, so there's no need to purchase an annuity within an IRA for this reason, either.
This is potentially a valid reason for purchasing an annuity within an IRA. One method to convert an IRA to an income stream is by purchasing an annuity inside the IRA. However, you can purchase an annuity when you desire a payout instead of purchasing it now for the option in the far future. However, it is possible that the products (annuities) that you purchase today may be better than the ones that are available later on in the open market. You may feel much more comfortable and secure with your future by purchasing the annuity within your IRA now instead of chancing the future.
- Guarantees provided by Annuities
The guarantees that are provided by annuities general contracts are provided by the insurance company, not the level of FDIC insurance through the US government. However, it is only bank deposits that are covered by the annuity guarantees but they have maintained a standard of being very good for people who own annuities.
In short, purchasing an annuity within an IRA is not necessary. IRAs and annuities on their own stand are both good products and there's no reason not to have both, but having an annuity within an IRA is, for the most part, pointless. It's best to speak with your annuity insurance broker or agent about purchasing an annuity and if the plusses of doing so within an IRA are the most beneficial to you. Based on the information above, you have a basis of knowledge for when you speak to an insurance agent or broker, or an IRA/retirement advisor.
Making the decision to purchase an annuity is a good one for your future, as one day you can have it as income when you've retired. However, IRAs tax shelters, which is the chief reason people think to purchase an annuity within their IRA accounts, is not going to do anything to secure your financial future any more than just purchasing a regular annuity (outside of the IRA account).