If you are considering putting your retirement money into an IRA, annuity investments may also be an option. Here are the basics of each type of retirement plan to help you decide which one is better for you.
The individual retirement account or IRA is one of the most popular forms of retirement investment in the United States. With this type of account, you can contribute money on a tax-free basis to your retirement. You can contribute up to $5000 per year to an IRA. If you are over the age of 50, you can contribute $6000 per year. You are allowed to invest the funds in the account in a number of different things. You can make the investment decisions yourself, or you can allow a custodian to do it for you, depending upon what sort of IRA you have. The money in the account is allowed to grow tax free. Then, when you reach the age of 59 1/2, you are free to withdraw the money from the account. At that point, you will pay taxes on the money that you take out as if it were income.
An annuity is another option for your retirement funds. Many employees of companies that offer pensions have the option to purchase an annuity or put their funds into an IRA upon retirement. With an annuity, you are exchanging your retirement dollars in a lump sum in exchange for a fixed payment from the annuity provider. It is also possible for you to build an annuity over time. Some annuities provide you with a payment for as long as you live. Other annuities provide you with a fixed time limit on the annuity. For example, you could convert your money into a 30-year Treasury Bond. You could also choose to use only a portion of your funds to purchase an annuity and use the rest for other purposes.
IRA vs. Annuity
When trying to decide between an IRA and an annuity, there are a few things that you will need to consider. One of the biggest things that you have to decide is whether you want control over your retirement funds. Some people prefer to be in charge of their retirement funds and make investment decisions. Others prefer to let someone else handle it for them.
If you like to have complete control over your retirement funds, an IRA is the way to go. You can set it up so that you make all of the investment decisions. If you prefer a hands-off approach, then an annuity is probably in your best interest. With an annuity, you can just give your money to someone else and then receive a monthly payment for the rest of your life.
Another consideration is the risk level that you want to take on. With an IRA, your funds could potentially be eliminated through bad investing. With an annuity, you are getting a guaranteed payment.