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Old 03-11-2008, 11:44 PM
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Is purchasing an annuity in an IRA account a good investment strategy?

I have been trying to find some safe investments for my dwindling IRA. In doing so, I have been approached to purchase an Annuity in my IRA. My concern is whether this is allowed and is it a Good Strategy?

Any help in this matter I would be very appreciative!



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Old 03-14-2008, 06:42 PM
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Is purchasing an annuity in an IRA account a good investment strategy

The answer to this question is very subjective, and it will differ amongst the various financial industry professional and the CPA. The CPA and the Financial Planner (who is only Fee-Based) may suggest that you do not indulge yourself with this method of investment in an IRA account. Whereas a Financial Professional who will be attempting to sell this product may feel that this product best suits you. Further he will argue its benefits that will offer a guaranteed stream of income at retirement and the relative safety versus the stock market.

The purpose of investing in an IRA account is take advantage of tax-free accumulation of gains from investment income. The tax-free accumulation is a powerful argument with assets in an IRA.

But, the nature of an Annuity is generally such that it is already provides for a Tax Free Accumulation of Earnings! Furthermore, the Annuity is a rather expensive product with very high surrender charges and management fees, and it is important to understand these expenses.

The commissions paid to Financial Professionals on the sale of this product are some of the highest amongst the financial products available in the market. Also, remember that once you purchase an Annuity, you are basically stuck with it for a minimum of 7 years, if you want to avoid paying surrender charges.

Most experts agree that the Annuity is a good product, but Not in an IRA! Furthermore, there are better products that you can invest in the market that will provide you with a steady stream of income without the encumbrances of the Annuity.

Outside of the IRA, the Annuity seems to be a reasonably good product but the Annuity market is in a constant flux,with new features and options available. To make a proper purchase you should understand all the cost associated with all the options and features, along with the Surrender Charges. Always, talk to your CPA to get his or her opinion as its suitability for your specific situation. A small tip, try and compare the Annuity rates amongst the various Insurance companies, you might be surprised to find a cheaper Annuity from another competing company.

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Ask TaxGuru Please refer to the legal disclaimer.


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