Use an IRA Annuity Wisely

IRA or Individual Retirement Account is the best thing that happened to people since the time it came into existence nearly three decades ago in the year 1982. There has been no stopping the success of the IRA with virtually every single type of financial institution, from banks to brokerage firms rushing to offer IRAs. IRA's popularity can be attributed to the fact that this is the only available savings avenue for those who do not have access to corporate or self-employed plans. Within the IRA umbrella it is possible to use any type of investment plan with the exception of life insurance, commodities futures, collectibles and some kinds of coins(ira annuity).

So, if the program is so popular what can possibly be wrong with it?

The argument by some people, is that just because an investment is permissible within an IRA this does not necessarily mean that it is beneficial. A topic for debate is whether annuities are appropriate investment vehicles to reside within IRAs simply because annuities are inherently tax deferred savings. But then so are IRAs. So why would one want to take a form of tax deferred saving and bury it inside another tax deferred account or plan? It is simply not logical. However, in spite of its obvious flaw, a great many insurance companies and agents are overly enthusiastic about IRA annuity.

Cryptics suggest that insurance agents without a securities license see the pot of IRA gold at the end of the rainbow and sell it hard. Whether that is true or not is debatable but insurance companies believe in giving customers value for money in terms of clean explanations for the options they provide. In this case, they know that investors seeking guaranteed rates of return will get higher yields from a fixed IRA annuity than other similar high risk options. The industry might would also point out features such as the ability to annuitize or a 10% annual withdrawal feature that does not exist in other fixed income alternatives. However, it's still hard to justify a fixed IRA annuity.

In the case of variable annuities, an IRA annuity has mote justification. Variable annuities offer a range of insurance and money-management features that are not included in other investments. Options such as periodic portfolio rebalancing, systematic investment plans, and living and death benefits for heirs are standard features in all modern variable annuity contracts. The asset allocation features normally found in these contracts can generally only be matched by professional money management firms, which can be inaccessible for most IRA or other retirement plan participants. So a variable IRA annuity, especially those contracts offering guaranteed minimum withdrawal guarantees, is far more justified.

In other words, there is more to a variable annuity than tax deferral which can justify its cause of being used as an IRA annuity.

To make a sound decision, it is important to consider the entire range of benefits that any opportunity offers and not just look at one or two features. It is also important to remember that variable annuities are subject to insurance related costs (mortality and expenses) and investment management fees associated with the underlying investments.

Having said this, if one is unsure as to whether an IRA annuity makes sense, it is beset to consult a retirement planner who offers a full range of investment opportunities.