Pittsburgh Post-Gazette

A new take on placing an annuity in an IRA

- By Tim Grant

Pittsburgh Post-Gazette

Annuities are contracts between individual­s and insurance companies that provide the purchaser with a steady stream of income during retirement. They often play a role in replacing or supplement­ing other fixed income streams, such as pensions and Social Security.

But many financial advisers say it makes little sense to hold an annuity in a retirement account such as a traditiona­l or Roth IRA because it would be similar to wearing a raincoat indoors. One of the main advantages of an annuity is that your money grows tax-deferred. However, any asset — stocks, bonds and annuities — that are held in an IRA is automatica­lly tax-deferred.

“Is it a good idea to buy an annuity within an IRA? At first blush, the answer would seem to be ‘no’ because one of the biggest benefits of an annuity is tax deferral, which you already have in an IRA. But it’s not so simple,” said Ken Nuss, CEO of AnnuityAdv­antage, a national marketplac­e for annuities based in Medford, Ore.

“If an annuity product meets a client’s needs in the best way, the fact that you are putting a tax-deferred product inside of an IRA that already provides tax deferral is irrelevant,” he said.

His example is a client who needs to supplement her income with a five-year fixed-rate investment. She could choose a corporate bond paying 2.5 percent, a bank CD paying 2 percent, or a fixed annuity yielding 3 percent.

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