What is an IRA Annuity and How Can it Benefit Me?


People planning for retirement are always looking for ways to increase their retirement accounts’ values. There are a variety of vehicles that are useful for achieving better results towards the days and needs of retirement. One of these that should be considered is an IRA Annuity.

About IRA Annuities

IRA annuities turn out to be contracts made between a person and an insurance company. They function as an endowment in that they pay out a pre determined monthly amount starting either at the age of fifty-nine and a half or when the person chooses to retire and access the funds. These payments can be set up to continue for the remainder of the owner’s life.

Trustees and custodians are not necessary to set up IRA annuities. Annuity terms can be established so that the contract runs for the life of the owner. They can also be set up for the lives of both the owner and spouse as a joint and survivor contract.

Limitations on IRA Annuities

The annuity amount and terms which the insurance company pays out only have to measure up to the requirements of the person’s IRA account. A few limitations do exist on these contracts. One of these is that no deduction may be taken out for life insurance premiums. Besides this, IRA annuities may not be borrowed against since borrowing against the annuity contract is not permitted with an IRA. A final thing to keep in mind with the setup of IRA annuities is that insurance companies commonly charge high fees up front. This means that a person should understand what the cost is for the actual annuity, and what amount is going to the insurance company for its portion.

Benefits of IRA Annuities

There are many different choices for investments permitted in an IRA. The selection where these monies will be placed is determined by the goals of the owner of the IRA. When the monies in the IRA annuity are not needed in the particular future, mutual funds, stocks, and bonds can be appropriate choices. The first benefit of an IRA that is held as an annuity is that an investor has another choice for these retirement funds. They can be held by the insurance company and provide a principal protection plus interest guarantee, which will be paid out in retirement.

Another reason that having an annuity in an IRA is so sensible is that annuities are easily structured to guarantee income for time periods including an entire life. When the person is saving for retirement and wants to have a guaranteed amount each month, the annuity will be set up so that the insurance company sends out a monthly check for the rest of the person’s life. Since a spouse can also be factored into the contract, income would keep coming even if the owner died prematurely.

A third way that IRA annuities make sense is in the peace of mind and convenience they provide. A person who allocates his IRA to the annuity issuing insurance company no longer has to worry about making the time consuming, complicated, and sometimes heart breaking decisions involved in investing and managing the funds. This becomes the insurance company’s problem, and not the IRA annuity owners’ issue at this point.

A final benefit of having annuities in an IRA account is that they can be laddered in using more than one annuity. A person might be interested in doing this to have one annuity that provides income for shorter time periods. The other annuities could then be permitted to continue gaining in value, only drawn on as the one before them ran out of payment time period. This turns out to be a significant advantage, since as each annuity’s funds are accessed, the person accessing them would be older. As the income payments are generally based on the owner’s age, future annuities would likely pay out at a greater monthly amount than the first annuity accessed.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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