What is the difference between an IRA and an annuity?

Individual Retirement Accounts (IRAs) and annuities are similar in some ways. Both investments allow you to grow your money on a tax-deferred basis, and you can even invest in an annuity within an IRA. There are significant differences between IRAs and annuities, however, and it pays to know the facts about both.


Money stored within IRAs can be used to buy a variety of investments, including:

  • Stocksinvestments
  • Bonds
  • CDs
  • Real Estate
  • Precious Metals
  • Annuities

In contrast, annuities are life insurance policies designed to provide you with income for an extended period of time. This income stream begins almost immediately if you own an immediate annuity, while deferred annuities provide income for you beginning at a certain point in the distant future. Deferred annuities may hold things like mutual funds or CDs, and some annuities may also allow for death benefits.

Contribution Limits

IRAs are subject to annual contribution limits ($5,500 in 2015, plus $500 more if you are over age 50). In the case of Roth IRA plans, there are also annual income limits ($191,000 in 2015).

Annuities are not subject to either contribution limits or income restrictions. However, if you hold an annuity in your IRA the IRA rules will apply.


Withdraws from Traditional IRAs are fully taxable, and withdrawals from Roth IRAs were taxed on the front end. Additionally, you usually have to pay a 10% penalty on IRA withdrawals made before you turn 59 ½ years of age.

If you withdraw money from an annuity before turning 59 ½ you will have to pay the 10% penalty. However, for non-qualified annuities (those not attached to IRAs) you only have to pay taxes on your earnings – not the entire withdrawal amount.

Protectioncash protection

IRA funds invested in a CD or money market account are covered by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. If your IRA is working with individual stocks or mutual funds, you are usually covered by the Securities Investor Protection Corporation (SIPC) for up to $500,000 in most cases. If you invest in precious metals or other IRA-allowable assets, there is usually an insurer to protect you in the event of theft or mismanagement. It is always advisable to confirm your coverage with your IRA broker.

Annuities, on the other hand, are not federally insured by the FDIC or SIPC. While your state may insure your annuity, insurance is not guaranteed and the level of coverage varies from state to state.


While annuities and IRAs are often used to accomplish the same purposes, these two methods of saving money work towards their purposes in very different ways. Each type of account has advantages and disadvantages, and this comparison of IRAs vs. annuities should not be viewed as exhaustive. If you would like more information on IRAs and annuities, or if you feel trapped by having an annuity inside your IRA and want to make changes, call Janguard today at 800.571.6341.


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