Annuities are extremely versatile investments. Because of this, they can be excellent tools for your retirement savings. There are many competing retirement accounts out there, including IRAs and Roth IRAs, 401(k)s and 403(b)s, CDs, and even some mutual funds. But thanks to their flexibility, annuities have benefits that these other investment vehicles do not. There are some benefits that these other investments have that annuities do not. This is especially true of IRAs and Roth IRAs.
In fact, you can make your annuity an IRA annuity or a Roth IRA annuity. The annuity will be subject to the same laws and regulations that govern IRAs, but it will have the added benefits and stipulations of an annuity. IRAs and Roth IRAs are extremely valuable retirement tools and maximizing your contributions to these is very important.
IRAs and Roth IRAs can only use earned income as a source. You cannot use inherited money or won money to fund these retirement accounts. There is also a cap on how much of your earnings you can contribute each year. This number changes slightly from year to year, so make sure you are aware of the current maximum contribution amount. Roth IRAs differ from IRAs in that if you earn over a certain amount of money per year, you are not eligible to contribute to them. For 2012, that amount is $110,000 for individuals and $173,000 for couples filing taxes jointly. If you make between $110,000 and $124,999 as an individual, you can make a reduced contribution. But if you make $125,000 or more, you are ineligible for a Roth IRA. The maximum contribution for a Roth IRA in 2012 is $5,000 for folks under age 50, $6,000 for folks age 50 or over. Penalty-free withdrawals can begin at age 59½ for these investments.
Because these dual investment vehicles are still subject to the laws of IRAs, there is a mandatory withdrawal age. Once you reach the age of 70½ you are required to withdraw at least a small amount of your investment. The current rate is determined by IRS regulations. There are severe IRS penalties if you do not follow these required minimum distributions, so be sure to keep up with these laws.
Traditional annuities do not have mandatory minimum withdrawals or maximum yearly contribution amounts. There are also no caps on how much you can earn in a year for traditional annuities. But because IRAs and Roth IRAs have many additional tax benefits that traditional annuities do not, combining these two types of investments is a great way to supplement your portfolio.