Should I Hold an Annuity Within My IRA?

An IRA already provides the investor with tax-deferred growth, so an annuity will not provide any additional tax benefits.

The investor may be interested, however, in the insurance guarantees provided by the annuity for a cost.

Generally speaking, you shouldn’t.

One of the biggest benefits of an Annuity is its tax-advantaged status; namely that the earnings on your investment grow tax-free until withdrawal. An IRA, of course, has the same tax treatment. Therefore, having an Annuity within your IRA will not provide you with any additional tax benefits.

On one hand, annuities, especially fixed annuities have guarantees and structures that older investors in particular might find attractive. So even if it doesn’t add anything to the tax advantage of the IRA, it may add a strategic advantage for their portfolio, or just suit their preferences.

Fewer arguments could be made in favor of a Variable Annuity inside of an IRA, since it’s basically an investment account much like another one, except probably with higher fees.

It may have features that the investor wants, however, such as a death benefit provision that makes sure their heirs get a certain amount even if the market tanks, or maybe the existence of a guaranteed fixed account within the variable annuity that benefits from the old, slow money in the insurer’s general account.

Just make sure you are aware that by paying more fees and relying on guarantees, you are probably passing up more potential gains in the market.

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