Individual Retirement Account (IRA)
With an IRA, you’re able to save for retirement with tax advantages. Compared to a 401(k), which you usually invest in through payroll contributions at your employer, an IRA is opened by an individual through a financial services provider, such as an investment firm or bank. IRAs allow you to choose among investment options like mutual funds, individual securities, and annuities. There are two common types of IRAs: traditional and Roth; each have different eligibility requirements, contribution limits, and tax benefits.
Tax AdvantagesWith a traditional IRA, your contributions may be tax-deductible and earnings in your account grow tax-deferred until you start distributions. A traditional IRA may be a good choice if you’re in a higher tax bracket now than you will be during retirement. With a Roth IRA, your contributions are made with after-tax money, so they are not tax-deductible, but earnings grow tax-deferred and withdrawals are tax-free, if certain conditions are met.1
Investment FlexibilityBoth traditional and Roth IRAs allow you to choose from a range of investment options. Your IRA can hold mutual funds, annuities, and individual securities like stocks, bonds, and exchange-traded funds. Investors should only consider buying an annuity to fund an IRA for the annuity’s additional features, such as lifetime income payments, living benefits, and death benefit protection, since annuities do not provide any additional tax advantages when used to fund a qualified plan, such as an IRA.
1You should carefully consider the age that you start taking withdrawals from any IRA since taxes and penalties may be assessed prior to age 59 ½.