Should You Use an Annuity in an IRA?

If you want to move a lump sum of money from your workplace retirement plan (such as a 401(k) or 403(b)) or other qualified savings plan to an IRA, you should consider the pros and cons of a fixed annuity IRA.

Here are some factors to consider as you make your IRA decision:

Annuity vs. IRA Distributions
A significant concern for anybody in retirement is that they might outlive their available financial resources. This is especially true in an era when Americans are living longer than ever. Annuities and IRAs offer different ways for individuals to take money out of their account in order to supplement their retirement income.

Required IRA Distributions
Annuities within an IRA are subject to required minimum distribution rules. Distributions must begin after the contract owner reaches age 70-1/2.

Contribution Limits in 2003
When you purchase an annuity within an IRA, contribution limit rules apply as with any IRA account. That means each individual can invest a maximum of $3,000 per year (in 2003) or 100% of earned income if less than $3,000. If you have a non-working spouse, the maximum allowed is $6,000 or 100% of earned income if less than $6,000. Any individual with earned income can make contributions to a traditional IRA (non-deductible or non-Roth).

Deductible Contributions and Roth IRAs
Depending on your income level, the contributions you make to your annuity within an IRA may be deductible from current income taxes. If you are not eligible to participate in a qualified retirement plan through your employer, you can make deductible IRA contributions.

If you are eligible for a workplace plan, like a traditional IRA, the following income limits apply:

Traditional IRA Income Limits
Filing Status	Phase-out1 level	Maximum2 income
Single	$30,000	$40,000
Married (filing jointly)	$50,000	$60,000

Another option may be to open a Roth IRA, using your annuity within the Roth IRA as your investment of choice. Not only will the earnings grow tax-deferred, but if certain holding-period requirements are met, every dollar you accumulate in your IRA can be withdrawn on a tax-free basis. The following income limits apply to qualify for a Roth IRA:

Roth IRA Income Limits
Filing Status	Phase-out1 level	Maximum2 income
Single	$95,000	$110,000
Married (filing jointly)	$150,000	$160,000

For further information regarding traditional or Roth IRAs, speak with your tax advisor.

When considering an annuity to fund your IRA, it is important to remember that tax advantages can be obtained through other investment vehicles funding your IRA. However, an annuity may be particularly appropriate for its benefits, such as lifetime income options, family protection through death benefits, nursing home riders, and guaranteed option features. Guarantees are based upon the claims-paying ability of the insurer.

¹ If the income level falls below this level, full eligibility for either deductible IRA contributions or Roth IRA contributions are allowed.

² If income falls between the phase-out level and this level, partial deductibility of IRA contributions or partial Roth IRA contributions are allowed. Once income levels exceed these amounts, no deductible or Roth IRA contributions are allowed.

Content is for informational purposes only and may not accurately reflect your specific situation. Information is not intended to provide financial, legal, tax, or accounting advice. You should consult a qualified advisor for advice specific to your own circumstances.