Annuities 101

5

min read

Annuity vs IRA: Which is better for retirement?

Shannon Reynolds

Shannon Reynolds

February 25, 2025

Individual retirement accounts (IRAs) and annuities offer different paths to retirement security. An IRA provides tax advantages for your retirement savings, while an annuity can guarantee a steady income.

Understanding the unique features and benefits of annuities versus IRAs helps you choose which option best supports your retirement goals. Here's what you need to know.

{{key-takeaways}}

What’s an annuity?

An annuity is a financial contract between you and an insurance company that converts your deposit into regular payments. The payout structure depends on your contract type. Some start as soon as 30 days after your deposit, while others grow tax-deferred for years.

There are three main types of annuities to choose from:

  • Fixed annuities provide a guaranteed interest rate on your deposit for predictable growth over time.
  • Variable annuities let you invest in options like mutual funds that grow based on market performance.
  • Indexed annuities accrue based on market indexes like the S&P 500® and usually come with guaranteed minimum earnings.

You can either purchase an annuity directly or contribute IRA funds into these accounts. This flexibility makes annuities versatile tools for retirement planning, whether you're looking for immediate income or long-term growth potential.

8 pros and cons of annuities

Like any financial product, annuities have their own set of pros and cons:

Pros Cons
Steady income: Fixed payments can provide reliable retirement income for life. Potential for high fees: Insurance charges, administrative costs, and commission fees can reduce overall earnings.
Tax-deferred growth: Earnings usually grow tax-deferred until you start making withdrawals. Withdrawal restrictions: Withdrawals over 10% may face surrender charges in early contract years. And most withdrawals before age 59½ incur IRS penalties.
No contribution limits: Unlike IRAs and other retirement accounts, you can deposit as little or as much as you want. Complex contracts: Some contracts have terms, conditions, and riders that might be difficult to understand.
Principal protection: Many annuities guarantee you won't lose your initial deposit. Lower potential earnings: An annuity’s growth may be more modest than other investments.

What’s an IRA?

An IRA is a tax-advantaged retirement account that allows you to invest in assets of your choosing, such as stocks, bonds, annuities, and mutual funds.

Just as there are different types of annuities, there are different types of IRAs to suit various financial situations. Traditional IRAs offer tax-deferred growth, meaning you don't pay taxes on your earnings until you make withdrawals in retirement. Your contributions may also be tax-deductible, lowering your current tax bill.

With a Roth IRA, you pay income taxes on your contributions up front, but your money grows tax-free, and you won't pay taxes when you withdraw funds in retirement. This makes Roth IRAs particularly attractive if you expect to be in a higher tax bracket when you retire.

In 2025, you can contribute up to $7,000 to your IRA (or $8,000 if you're 50 or older). While penalty-free withdrawals are typically restricted until age 59½, certain exceptions exist for life events like first-time home purchases or qualified education expenses.

8 pros and cons of IRAs

Just like annuities, IRAs have pros and cons to consider before opening an account:

Pros Cons
Tax advantages: You get potential tax deductions with traditional IRAs and tax-free growth with Roth IRAs. Investment risk: Account value can fluctuate based on market performance.
Investment flexibility: IRAs let you diversify your portfolio by choosing from many investment options. Withdrawal penalties: There’s typically a 10% penalty on early withdrawals before age 59½.
Accessibility: IRAs are easy to open and manage online. Contribution limits: The government's annual caps restrict how much you can save.
Lower fees: IRAs often have fewer fees than many retirement products. Income restrictions: Some IRAs have income limits for contributions.

Annuity vs IRA: 7 differences

While both of these accounts help build your retirement savings, an annuity isn’t the same as an IRA. Here are seven key differences between the two.

1. Control over investments

IRAs give you total control over your money — you can choose where to put your funds and change these investments whenever you like.

With fixed annuities, the insurance company manages your money and provides guaranteed rates. For variable and indexed annuities, the insurer may provide a preset list of assets for you to choose — often money market funds.

2. Payment schedules

IRAs focus on long-term savings, typically until retirement age. While you can withdraw funds earlier, you'll usually face penalties before age 59½.

But annuities offer more timing choices. For instance, immediate annuities start paying within 30 days, while deferred accounts grow your money for future use.

3. Customization options

IRAs keep things simple: You choose your investments and contribution schedule.

Annuities offer more ways to customize your contract. Fixed annuities provide steady growth, while variable and indexed annuities let you take on more risk for potentially higher gains. You can also add optional features called riders for extra benefits such as inflation protection.

4. Account management

With IRAs, you make investment decisions yourself or work with a financial advisor of your choice.

When you buy an annuity, the insurance company manages your money based on your contract type. While financial advisors can help you choose an annuity, the insurance company ultimately manages your money according to the terms you select.

5. Tax treatment

Annuities, Roth IRAs, and traditional IRAs each have different tax advantages. Traditional IRAs offer tax-deferred growth and may be tax deductible, while Roth IRAs provide tax-free withdrawals in retirement.

On the other hand, most annuities grow tax-deferred but withdrawals are typically taxed as ordinary income.

6. Required withdrawals

Traditional IRAs require you to start taking payments at age 73. For Roth IRAs, withdrawals aren’t regulated until the account owner’s death.

Annuities offer more flexibility, generally letting you choose when to start receiving payments according to your contract terms.

7. Death benefits and inheritance

IRAs pass directly to your named beneficiaries, who have specific options for withdrawing the money.

Annuities can include death benefit features, so your beneficiaries receive your remaining assets (if any), a preset minimum amount, or another arrangement.

{{inline-cta}}

How to decide between an annuity vs. IRA

When it comes to retirement savings, there are pros and cons of both annuities and IRAs. To choose between these retirement options, consider the following:

  • Income needs: Do you want guaranteed payments or flexible access to your money?
  • Risk tolerance: Are you comfortable with market volatility, or do you prefer guaranteed earnings?
  • Tax situation: Would you benefit more from tax deductions now or tax-free withdrawals later?
  • Time horizon: When do you need to access your retirement savings?
  • Contribution capacity: Will you exceed IRA contribution limits?

You can also use both options as part of your retirement strategy. For example, an IRA provides growth and flexibility, while an annuity supplies guaranteed income. This combination helps balance different retirement needs while taking advantage of different tax benefits.

FAQs

What’s an IRA annuity?

An IRA annuity lets you hold an annuity inside an IRA. It combines the tax advantages of IRAs with the guaranteed income of annuities. 

However, withdrawals are subject to both IRA rules (including potential early withdrawal penalties before age 59½) and annuity contract terms (such as surrender charges in early years).

Which annuity allows contributions to an IRA?

You can’t contribute annuity income to an IRA. But the opposite is possible — you can easily contribute IRA funds to purchase an annuity.

Can you transfer an annuity to an IRA without penalty?

If you purchase an annuity with pre-tax dollars — also known as a qualified annuity — you can usually roll those funds over into a traditional IRA without tax implications. But if you buy an annuity with after-tax funds (non-qualified annuity), you generally can’t transfer it into an IRA. And neither type of annuity rolls over into a Roth IRA.

You can typically move funds in the other direction, from an IRA to an annuity, through a direct transfer.

This communication is for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice.

Related Topics
Want more from your savings?
Compare your options
Question 1/8
How old are you?
Why we ask
Some products have age-based benefits or rules. Knowing your age helps us point you in the right direction.
Question 2/8
Which of these best describes you right now?
Why we ask
Life stages influence how you think about saving, growing, and using your money.
Question 3/8
What’s your main financial goal?
Why we ask
Different annuities are designed to support different goals. Knowing yours helps us narrow the options.
Question 4/8
What are you saving this money for?
Why we ask
Knowing your “why” helps us understand the role these funds play in your bigger financial picture.
Question 5/8
What matters most to you in an annuity?
Why we ask
This helps us understand the feature you value most.
Question 6/8
When would you want that income to begin?
Why we ask
Some annuities allow income to start right away, while others allow it later. This timing helps guide the right match.
Question 6/8
How long are you comfortable investing your money for?
Why we ask
Some annuities are built for shorter terms, while others reward you more over time.
Question 7/8
How much risk are you comfortable taking?
Why we ask
Some annuities offer stable, predictable growth while others allow for more market-linked potential. Your comfort level matters.
Question 8/8
How would you prefer to handle taxes on your earnings?
Why we ask
Some annuities defer taxes until you withdraw, while others require you to pay taxes annually on interest earned. This choice helps determine the right structure.

Based on your answers, a non–tax-deferred MYGA could be a strong fit

This type of annuity offers guaranteed growth and flexible access. Because it’s not tax-deferred, you can withdraw your money before age 59½ without IRS penalties. Plus, many allow you to take out up to 10% of your account value each year penalty-free — making it a versatile option for guaranteed growth at any age.

Fixed interest rate for a set term

Penalty-free 10% withdrawal per year

Avoid a surprise tax bill at the end of your term

Withdraw before 59½ with no IRS penalty

Earn

${CD_DIFFERENCE}

the national CD average

${CD_RATE}

APY

Our rates up to

${RATE_FB_UPTO}

Based on your answers, a non–tax-deferred MYGA could be a strong fit for your retirement

A non–tax-deferred MYGA offers guaranteed fixed growth with predictable returns — without stock market risk. Because interest is paid annually and taxed in the year it’s earned, it can be a useful way to grow retirement savings without facing a large lump-sum tax bill at the end of your term.

Fixed interest rate for a set term

Penalty-free 10% withdrawal per year

Avoid a surprise tax bill at the end of your term

Withdraw before 59½ with no IRS penalty

Earn

${CD_DIFFERENCE}

the national CD average

${CD_RATE}

APY

Our rates up to

${RATE_FB_UPTO}

Based on your answers, a tax-deferred MYGA could be a strong fit

A tax-deferred MYGA offers guaranteed fixed growth for a set term, with no risk to your principal. Because taxes on interest are deferred until you withdraw funds, more of your money stays invested and working for you — making it a strong option for growing retirement savings over time.

Fixed interest rate for a set term

Tax-deferred earnings help savings grow faster

Zero risk to your principal

Flexible term lengths to fit your timeline

Guaranteed rates up to

${RATE_SP_UPTO} APY

Based on your answers, a tax-deferred MYGA with a Guaranteed Lifetime Withdrawal Benefit could be a strong fit

This type of annuity combines the predictable growth of a tax-deferred MYGA with the security of guaranteed lifetime withdrawals. You’ll earn a fixed interest rate for a set term, and when you’re ready, you can turn your savings into a dependable income stream for life — no matter how long you live or how the markets perform.

Steady income stream for life

Tax-deferred fixed-rate growth

Up to ${RATE_PF_UPTO} APY, guaranteed

Keeps paying even if your account balance reaches $0

Protection from market ups and downs

Based on your answers, a fixed index annuity tied to the S&P 500® could be a strong fit

This type of annuity protects your principal while giving you the potential for growth based on the performance of the S&P 500® Total Return Index, up to a set cap. You’ll benefit from market-linked growth without risking your original investment, along with tax-deferred earnings for the length of the term.

100% principal protection

Growth linked to the S&P 500® Total Return Index (up to a cap)

Tax-deferred earnings over the term

Guaranteed minimum return regardless of market performance

Let's talk through your options

It seems you’re not sure where to begin — and that’s okay. Our team can help you understand how different annuities work, answer your questions, and give you the information you need to feel confident about your next step.

Our team is available Monday through Friday, 8:00 AM–5:00 PM ET.

Phone

Call us at
1-866-252-9439

Email

Let’s find something that works for you

Your answers don’t match any of our current quiz results, but you can still explore other types of annuities that are available. Take a look to see if one of these could fit your needs:

Non–Tax-Deferred MYGA

Guaranteed fixed growth with flexible access

May be ideal for:

those who want to purchase an annuity and withdraw their funds before 591/2.

Learn more
Tax-Deferred MYGA

Fixed-rate growth with tax-deferred earnings for long-term savers

May be ideal for:

those seeking fixed growth for retirement savings.

Learn more
Tax-Deferred MYGA with GLWB

Guaranteed growth plus a lifetime income stream

May be ideal for:

those seeking lifetime income.

Learn more
Fixed Index Annuity tied to the S&P 500®

Market-linked growth with principal protection

May be ideal for:

those looking to get index-linked growth for their retirement money, without risking their principal.

Learn more

Consider a flexible fit for your age and goals

You mentioned you’re looking for [retirement savings / income for life / stock market growth], but since you’re under 25, you might benefit more from a product that gives you more flexibility to access your money early.

A non–tax-deferred MYGA offers guaranteed fixed growth and allows you to withdraw funds before age 59½ without the 10% IRS penalty. You can also take out up to 10% of your account value each year without a withdrawal charge, giving you more flexibility while still earning a predictable return.

Highlights:

Fixed interest rate for a set term (3–10 years)

Withdraw before 59½ with no IRS penalty

10% penalty-free withdrawals each year

Interest paid annually and taxable in the year earned

Learn more about non–tax-deferred MYGAs
Thank you! Your submission has been received!
Take the Quiz

Stay Ahead. Get the Latest from Gainbridge.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Table of Contents

Share

This is some text inside of a div block.
Shannon Reynolds

Shannon Reynolds

Shannon is the director of customer support and operations at Gainbridge®.

For superior savings, stick with

Gainbridge®’s FastBreak™

If you want the highest fixed returns on your savings, check out Gainbridge®’s FastBreak™. This annuity does not offer tax deferral, which allows you to access your money prior to 59 ½ without paying an IRS early tax withdrawal penalty.

FastBreak offers a locked-in APY generally above competing CDs.

Get started

Individual licensed agents associated with Gainbridge® are available to provide customer assistance related to the application process and provide factual information on the annuity contracts, but in keeping with the self-directed nature of the Gainbridge® Digital Platform, the Gainbridge® agents will not provide insurance or investment advice

Stay Ahead. Get the Latest from Gainbridge.

Join our newsletter for simple savings insights, updates, and tools designed to help you build a secure future.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Key takeaways
Annuities are insurance contracts that provide regular income payments, with options like fixed, variable, and indexed types, offering guaranteed growth or market-linked returns.
IRAs are tax-advantaged retirement accounts that give you full control over investments, with traditional IRAs offering tax-deferred growth and Roth IRAs offering tax-free withdrawals.
Key differences include investment control (IRAs offer more control), payment timing (annuities can provide immediate income), tax treatment, required withdrawal rules, and death benefits.
Choosing between an annuity and an IRA depends on your income needs, risk tolerance, tax situation, time horizon, and contribution limits—and many retirees use both to balance growth and guaranteed income.
Curious to see how much your money can grow?

Explore different terms and rates

Use the calculator
Want more from your savings?
Compare your options

Stay Ahead. Get the Latest from Gainbridge.

Join our newsletter for simple savings insights, updates, and tools designed to help you build a secure future.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

See how your money can grow with Gainbridge

Try our growth calculator to see your fixed return before you invest.

Interested in annuities? Take your savings knowledge with you

Get a quick breakdown of how Gainbridge® fixed annuities compare — and which one might be right for you.

Annuity vs IRA: Which is better for retirement?

by
Shannon Reynolds
,
Licensed Insurance Agent

Individual retirement accounts (IRAs) and annuities offer different paths to retirement security. An IRA provides tax advantages for your retirement savings, while an annuity can guarantee a steady income.

Understanding the unique features and benefits of annuities versus IRAs helps you choose which option best supports your retirement goals. Here's what you need to know.

{{key-takeaways}}

What’s an annuity?

An annuity is a financial contract between you and an insurance company that converts your deposit into regular payments. The payout structure depends on your contract type. Some start as soon as 30 days after your deposit, while others grow tax-deferred for years.

There are three main types of annuities to choose from:

  • Fixed annuities provide a guaranteed interest rate on your deposit for predictable growth over time.
  • Variable annuities let you invest in options like mutual funds that grow based on market performance.
  • Indexed annuities accrue based on market indexes like the S&P 500® and usually come with guaranteed minimum earnings.

You can either purchase an annuity directly or contribute IRA funds into these accounts. This flexibility makes annuities versatile tools for retirement planning, whether you're looking for immediate income or long-term growth potential.

8 pros and cons of annuities

Like any financial product, annuities have their own set of pros and cons:

Pros Cons
Steady income: Fixed payments can provide reliable retirement income for life. Potential for high fees: Insurance charges, administrative costs, and commission fees can reduce overall earnings.
Tax-deferred growth: Earnings usually grow tax-deferred until you start making withdrawals. Withdrawal restrictions: Withdrawals over 10% may face surrender charges in early contract years. And most withdrawals before age 59½ incur IRS penalties.
No contribution limits: Unlike IRAs and other retirement accounts, you can deposit as little or as much as you want. Complex contracts: Some contracts have terms, conditions, and riders that might be difficult to understand.
Principal protection: Many annuities guarantee you won't lose your initial deposit. Lower potential earnings: An annuity’s growth may be more modest than other investments.

What’s an IRA?

An IRA is a tax-advantaged retirement account that allows you to invest in assets of your choosing, such as stocks, bonds, annuities, and mutual funds.

Just as there are different types of annuities, there are different types of IRAs to suit various financial situations. Traditional IRAs offer tax-deferred growth, meaning you don't pay taxes on your earnings until you make withdrawals in retirement. Your contributions may also be tax-deductible, lowering your current tax bill.

With a Roth IRA, you pay income taxes on your contributions up front, but your money grows tax-free, and you won't pay taxes when you withdraw funds in retirement. This makes Roth IRAs particularly attractive if you expect to be in a higher tax bracket when you retire.

In 2025, you can contribute up to $7,000 to your IRA (or $8,000 if you're 50 or older). While penalty-free withdrawals are typically restricted until age 59½, certain exceptions exist for life events like first-time home purchases or qualified education expenses.

8 pros and cons of IRAs

Just like annuities, IRAs have pros and cons to consider before opening an account:

Pros Cons
Tax advantages: You get potential tax deductions with traditional IRAs and tax-free growth with Roth IRAs. Investment risk: Account value can fluctuate based on market performance.
Investment flexibility: IRAs let you diversify your portfolio by choosing from many investment options. Withdrawal penalties: There’s typically a 10% penalty on early withdrawals before age 59½.
Accessibility: IRAs are easy to open and manage online. Contribution limits: The government's annual caps restrict how much you can save.
Lower fees: IRAs often have fewer fees than many retirement products. Income restrictions: Some IRAs have income limits for contributions.

Annuity vs IRA: 7 differences

While both of these accounts help build your retirement savings, an annuity isn’t the same as an IRA. Here are seven key differences between the two.

1. Control over investments

IRAs give you total control over your money — you can choose where to put your funds and change these investments whenever you like.

With fixed annuities, the insurance company manages your money and provides guaranteed rates. For variable and indexed annuities, the insurer may provide a preset list of assets for you to choose — often money market funds.

2. Payment schedules

IRAs focus on long-term savings, typically until retirement age. While you can withdraw funds earlier, you'll usually face penalties before age 59½.

But annuities offer more timing choices. For instance, immediate annuities start paying within 30 days, while deferred accounts grow your money for future use.

3. Customization options

IRAs keep things simple: You choose your investments and contribution schedule.

Annuities offer more ways to customize your contract. Fixed annuities provide steady growth, while variable and indexed annuities let you take on more risk for potentially higher gains. You can also add optional features called riders for extra benefits such as inflation protection.

4. Account management

With IRAs, you make investment decisions yourself or work with a financial advisor of your choice.

When you buy an annuity, the insurance company manages your money based on your contract type. While financial advisors can help you choose an annuity, the insurance company ultimately manages your money according to the terms you select.

5. Tax treatment

Annuities, Roth IRAs, and traditional IRAs each have different tax advantages. Traditional IRAs offer tax-deferred growth and may be tax deductible, while Roth IRAs provide tax-free withdrawals in retirement.

On the other hand, most annuities grow tax-deferred but withdrawals are typically taxed as ordinary income.

6. Required withdrawals

Traditional IRAs require you to start taking payments at age 73. For Roth IRAs, withdrawals aren’t regulated until the account owner’s death.

Annuities offer more flexibility, generally letting you choose when to start receiving payments according to your contract terms.

7. Death benefits and inheritance

IRAs pass directly to your named beneficiaries, who have specific options for withdrawing the money.

Annuities can include death benefit features, so your beneficiaries receive your remaining assets (if any), a preset minimum amount, or another arrangement.

{{inline-cta}}

How to decide between an annuity vs. IRA

When it comes to retirement savings, there are pros and cons of both annuities and IRAs. To choose between these retirement options, consider the following:

  • Income needs: Do you want guaranteed payments or flexible access to your money?
  • Risk tolerance: Are you comfortable with market volatility, or do you prefer guaranteed earnings?
  • Tax situation: Would you benefit more from tax deductions now or tax-free withdrawals later?
  • Time horizon: When do you need to access your retirement savings?
  • Contribution capacity: Will you exceed IRA contribution limits?

You can also use both options as part of your retirement strategy. For example, an IRA provides growth and flexibility, while an annuity supplies guaranteed income. This combination helps balance different retirement needs while taking advantage of different tax benefits.

FAQs

What’s an IRA annuity?

An IRA annuity lets you hold an annuity inside an IRA. It combines the tax advantages of IRAs with the guaranteed income of annuities. 

However, withdrawals are subject to both IRA rules (including potential early withdrawal penalties before age 59½) and annuity contract terms (such as surrender charges in early years).

Which annuity allows contributions to an IRA?

You can’t contribute annuity income to an IRA. But the opposite is possible — you can easily contribute IRA funds to purchase an annuity.

Can you transfer an annuity to an IRA without penalty?

If you purchase an annuity with pre-tax dollars — also known as a qualified annuity — you can usually roll those funds over into a traditional IRA without tax implications. But if you buy an annuity with after-tax funds (non-qualified annuity), you generally can’t transfer it into an IRA. And neither type of annuity rolls over into a Roth IRA.

You can typically move funds in the other direction, from an IRA to an annuity, through a direct transfer.

This communication is for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice.

For superior savings, stick with Gainbridge®’s FastBreak™

If you want the highest fixed returns on your savings, check out Gainbridge®’s FastBreak™. This annuity does not offer tax deferral, which allows you to access your money prior to 59 ½ without paying an IRS early tax withdrawal penalty. FastBreak offers a locked-in APY generally above competing CDs.

Shannon Reynolds

Linkin "in" logo

Shannon is the director of customer support and operations at Gainbridge®.