First, what is an IRA and an Annuity?
An IRA is an Individual Retirement Account which is a basically a tax category. This is usually an account set up at a bank or other financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. Where your money is in a mutual fund or a similar investment.
A 401K is a type of employer pension plan used to replace a traditional pension plan. Whereas an IRA is an individual retirement account not necessarily set up by an employer. Both plans are investment accounts that are designed to provide income in retirement.
An Annuity is a contract with an insurance company where you put money in over a given time and then take your money out over a given period of time. Where a series of payments are paid in and or received out over a period of time. Each one is structured and individualized to the client’s needs. There are also categories of a grated rate of return, locked in gains, income for life, and principle protection. Annuities can include a retirement account, bond payments or the distribution of a sum of money, like a lottery winning over time. An annuity can be an IRA, 401k, 403b, SEP, Simple, that are taxed deferred. Annuities have a length of time and when and how it will be paid out, called the “term” and “rate of return.”
The legal category of an “investment” is where there is “loss potential” and well as having a tax output.
An annuity is NOT an investment because there is no loss potential and there are significant tax advantages. Thank Wall Street for that. They do not want your money safe and growing, because they make their money from your losses.
A FIA is an annuity with a set rate, this is called a Fixed Index Annuity which credits a minimum guaranteed rate of interest over a fixed number of years. It acts like a personal pension plan. Moreover, additional interest may be credited based on the percentage change in the value of a market index. Typically, they have a floor, where it cannot go below and a ceiling that it cannot go above a set rate. Your money is actually insured against loss. And, there is no probate!
Rollover IRA, is a way to take an old IRA or 401k and take your money that you contributed and “rolled over” from a one qualified retirement plan into another qualified plan. With annuities, there are no penalties to roll them over. Also, there is now government wavers as well as Coronavirus-related relief for retirement plans and IRA’s.
There has never been a better time to roll over and grow your money!
What is better an IRA or an annuity?
And IRA has benefits. There are matching funds from your employer, there are tax benefits, and it is deductible each year. An IRA also has limits and restrictions whereas annuities do not. And, an annuity is a type of contract. So, this is actually a comparison of a tax category verses a contact with an insurance company.
So, the decision is, do you want to put your money where it will lose over time and only have perhaps potential gains? Or, do you want your money protected and growing? If you want loss, then stick to your 401k. If you want growth over time without loss, then consider a FIA.
So, let us look at what you get with both.
With most IRA’s and ROTH’s you pay the tax when it comes out.
Is this good? Well, you pay the tax when the amount is higher. This is actually good for the government, not so much for your retirement. It is better to pay the tax upfront, at a lower and lesser rate, which you do with an annuity. This is all about when and how you will be taxed and the terms. The annuity is taxed upfront and IRA when you take it out. Now, if you lost most of your money in an IRA, then it is better to pay the tax when you take it out.
The IRS sets up the terms of the IRA, the insurance company sets up the terms and conditions of the annuity. It is about, who would you rather deal with a company with your best interests that have been around for a hundred and seventy-five years or the government?
Most annuities have traditional IRA’s pack in them that gives the advantages of both.
An annuity can be set up to give you greater tax advantages and bigger rates of return which is what the FIA does. You can have the best of both, while your money is insured against loss! In addition, with a FIA, you can have an Index Strategy such as the S&P 500 with it, where you are having a ceiling and floor, so do not worry about your future or lose your money, ever. When the market goes up, so does your money. When the market goes down like in March and April of 2020, your money stays put, no loss.
In the sales world IRA’s and Annuities are competitors.
If you think annuities are bad, you probably do not know much about them or were told something that may not be true from a salesperson who sells IRA’s. Of course, they will tell you annuities are bad and converse you to put your money that makes them the most commission. Remember IRA’s lose money, not sure? Check out yours here: www.brightscope.com. Then, you can watch it go up and down and not have what you need for retirement. I know this because that is what I did when I worked for the big bank and a captive brokerage firm.
What about the cost of the annuity called, the COI, the Cost of Insurance? Well, it is like this, would you rather pay 35-40%+ of taxes or pay 2-3% for the cost of a FIA?
But wait there is more! With a FIA, you can have Living benefits too. There are optional living benefits like nursing care, unemployment waver as well as penalty free withdrawals.
Are there bad annuities. Yes, there are! Especially old ones set up before 2008 (We can fix them or turn them into better ones.). But look at this, if you have an annuity that is set up right, you do not lose your money. If you have a traditional IRA, where did your money go? Yes, there are bad annuities out there, why you need an experienced and licensed independent agent who will listen to you then research the best options and put together the best plan for you, to help you.
By the way, we do not have a dog in this fight, as we set up and service both IRA’s and annuities. So, it is up to you what you want. We are here to help you get what you need and want. We also like to educate.
One last thing, there is a company that is offering enhanced benefits, and an unprecedented 150% bonus in 5 years, and you can double your money in 10 years!
You will need to have an experienced and knowledgeable agent who is not captive to one company and can take a deep look at your needs and find you the best investment vehicle to match it. We can do that! firstname.lastname@example.org