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Annuities 101 – Annuities have been confused with IRA’s for years. I think it might be the “A” in IRA. It is very common to be a little confused about your IRA considering it has changed throughout the years and so have annuities. Are annuities the same as an IRA? A good place to start is to explain how each work and then how each work in relation to each other.

You may have a joint checking account at the bank. You may have a single checking account. Think of an IRA as a type of account like these. An annuity is also a type of account. When you begin thinking along these lines they instantly become easier to understand.

For our Annuities 101 and to keep it simple think of the annuity as an account designation or type of account. The rules for annuities are very specific but each kind of account has rules. For a detailed description visit IRS.GOV. Annuities and IRA’s both have a 10% penalty if you take money out before you are 59 and a half. There are exceptions so if you are over 59 and half you should visit the IRS website.

The penalties have nothing to do with the actual company you have your IRA or annuity invested through. There could be additional fees to take money out early. The fees would show up as commissions, back end fees, or surrender charges.

Where it gets confusing is what you put inside of the IRA. If the IRA is an account then what you invest in provides your return. IRA’s 101 – What can you invest in through your IRA? CD’s, bonds, stocks, mutual funds, real estate, pretty much anything that is a paper asset. The most confusing part of this discussion is that the IRA can invest in an annuity.

Since the IRA is the account designation the IRA is not the investment. Whatever is in the investment is the investment. That means if you have an IRA at the bank, your IRA is invested in something – most likely CD’s. So the IRA is the account and the CD’s are the investment. IRA’s can be held at many different types of financial institutions including insurance companies. That means your IRA can be invested in an annuity and held at the insurance company.

Should you invest in your IRA or your annuity first? Here is some general investment advice. If you haven’t retired yet, it is probably best to invest in your IRA first and then the annuity. Since there are contribution limits on your IRA the annuity is a good place to put money after you have reached those limits. Annuities are available to invest in inside your IRA but just be sure to max out your IRA contributions before investing in annuities outside of the IRA.

Annuities are a great way to invest during retirement but be cautious with variable annuities. Fixed annuities offer a way to rollover your retirement accounts like a 401k, SEP, Simple, or 403b into a safe solution for your nest egg. You would have safety, security, guaranteed income, potential for growth, and guarantees from the state if your insurance company ever went out of business. You could be off of the stock market roller coaster for good!

So here in annuities 101 we looked the difference between the annuity account and the IRA account. They are not the same but annuities can be part of what your IRA money is invested with inside of the account. We also learned that IRA’s should be filled first and then if you have more to invest annuities are a good option. Later in retirement, investing in annuities inside of your IRA accounts can be very beneficial providing security, safety, and guarantees that other investments do not offer.

To discover more about how to use annuity strategies to guarantee your retirement incomesign up for Keith’s step by step 7 Free Retirement Tutorials or visit his website for Annuity Help Now.

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