Be Careful About Annuities in IRAs

Ever since their inception back in 1982, IRAs have been offered by virtually every type of financial institution, from banks to brokerage firms to insurance companies. They are, in fact, the only possible avenue available for many retirement savers who do not have access to corporate or self-employed plans. Virtually any type of investment can be used inside an IRA, with the exception of life insurance, commodities futures, collectibles, and some kinds of coins. However, just because an investment is permissible within an IRA does not necessarily mean that it is beneficial. There has been much debate over whether annuities are appropriate retirement investment vehicles inside IRAs, or any other type of tax-deferred retirement plan for that matter. The main argument against doing this is obvious: why put an investment that is already inherently tax-deferred inside of an account or plan that is also tax-deferred? Because, of course, there is no such thing as “double” tax-deferral; money that has been deferred from taxation once cannot be deferred again! Yet a great many insurance companies and agents enthusiastically promote annuities within IRA accounts. The insurance industry would be quick to respond that investors seeking guaranteed rates of return will get higher [...]

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