Q:

Why should you use an annuity as a retirement tool instead of a traditional or Roth IRA?

A:

Quick Answer

An annuity allows for an unlimited initial contribution, while a Roth IRA initial contribution is limited by the IRS. Therefore, people who have a large amount of capital to contribute to a retirement account benefit from opening an annuity instead of a Roth.

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Full Answer

In addition to having maximum contributions, the IRS decreases the amount of money people are allowed to put in Roths; once income reaches a certain level, people are not allowed to put any money into a Roth account. Thus, people with higher incomes who want to have retirement accounts and do not have Roths as an option have annuities as an option.

Annuities also manage invested money for the investor. Thus, investors who do not have the knowledge of investing or who have no interest in managing their investments benefit from an annuity because of its structured investment procedures. In addition, some annuities guarantee a certain rate of return.

Lastly, annuities have different payout options. Investors who want to limit the tax bill their heirs incur upon their death benefit from the single-life annuity because with this payout option, the payments stop upon the initial investor's death and their heirs do not incur a subsequent tax bill on the annuity.

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