Individual Retirement Annuity – Definition

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Individual Retirement Annuity

An individual retirement annuity is an investment account or a retirement plan that allows individuals to make contributions and build their retirement savings. Just like an individual retirement account (IRA), an individual retirement annuity contract offers tax advantages tax retirement plan that pays benefits to the annuity owner or the surviving beneficiaries.

A Little More on What is an Individual Retirement Annuity

An individual retirement annuity is a tax-deferred or pre-deferred investment account similar to an IRA, it enables participants to build up their retirement savings. The major difference between the individual retirement annuity and an IRA is that the former is not actively managed. The annuitant or owner of the individual retirement annuity can draw up savings for retirement income or invest the savings in a fixed or variable annuity. An individual retirement annuity is tax-deferred and provides future financial security to the annuitant or the surviving beneficiary.

There are specific conditions or requirements in an individual retirement annuity, they include the following;

  • The annuitant’s interest in the annuity must be fully vested which disallows the annuitant from transferring any part of the balance to another party.
  • The maximum contribution that can be made in an individual retirement annuity as of 2018 was $5,500 for individuals under the age of 49 and $6,500 for those above the age of 60.
  • All the contributions and distributions in an individual retirement annuity must be made before the owner of the annuity clocks age 70½.

Individual Retirement Annuity vs. IRA

Despite that the individual retirement annuity is similar to the individual retirement account (IRA), they have certain differences. The similarities between these two retirement plans are that they are both tax-deferred and are available in the same variants; the traditional and Roth. The difference between the two retirement vehicles or plans is seen in how they are funded, invested and the withdrawal principles that apply to both. While the individual retirement annuities can only be invested in fixed and variable annuities only, IRAs are open to numerous investments. Title 26, Subsection 408 of the United States Code contains the rules, requirements and eligibility criteria governing individual retirement annuities.

Individual Retirement Annuity Advantages

Individual Retirement Annuity serves as a reliable means through which individuals can save up for retirement. It offers secure finance or steady payment of income to annuitants after retirement.  The funds in the plan are made available to owners of the annuity or the surviving beneficiaries. Employees can fund individual retirement annuities without the help of their employers. It is tax-deferred, the earnings are only taxed at withdrawal.

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