Annuity vs. IRA: What’s the Difference?

When planning for retirement, it’s common to hear about annuities and IRAs, but they serve very different purposes. Understanding the difference can help you make the right choice for your financial future.

An annuity is a financial product issued by an insurance company that provides a stream of income, often for life or a set period. It can be purchased with after-tax money or through a tax-advantaged account like an IRA. The primary benefit of an annuity is its ability to provide guaranteed payments, making it an attractive option for those looking for financial security in retirement.

An IRA (Individual Retirement Account), on the other hand, is a tax-advantaged account designed to help individuals save for retirement. It allows for a variety of investments, including stocks, bonds, mutual funds, and even alternative assets like real estate through a Self-Directed IRA. Unlike an annuity, an IRA does not provide guaranteed income but gives the account holder more flexibility and control over their assets.

The key difference is that an annuity is a product meant to distribute income, while an IRA is an account used to build retirement savings. An annuity is managed by an insurance company and often comes with higher fees and fewer investment choices, while an IRA allows for more control and diversification.

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Which One is Right for You?

Choosing between an annuity and an IRA depends on your retirement goals. If you prioritize guaranteed income, an annuity might be a good fit. If you prefer control over your investments and the potential for growth, an IRA—like a Self-Directed IRA—could be a better choice.

Before making any decisions, it’s important to consult with a financial planner or CPA to ensure that your retirement strategy aligns with your financial needs and long-term goals.