Whats the difference between an annuity, a 401k plan and an IRA?
A. Like retirement plans such as 401(k)s and IRAs, annuities have special tax benefits granted by Congress to encourage people to save for retirement and to help them accumulate savings faster than in a taxable investment earning a similar rate of return. The major differences are: • Contributions to annuities are generally made with after-tax dollars. 401(k) contributions are generally made with pre-tax dollars, while IRA contributions are generally made with after-tax dollars. Depending on your Adjusted Gross Income and filing status (e.g., single, married, filing jointly), you may qualify to deduct fully or partially your IRA contribution on your federal income tax return. For this reason, it is advantageous to contribute to a 401(k) plan and an IRA before contribution to a deferred annuity. • There are no limits on the contributions you can make to an annuity, unlike 401(k) plans and IRAs. • When withdrawing money from an annuity, you will pay ordinary income taxes only on your ear
