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Deathmatch: IRAs vs Annuities

Variable annuities also charge fees for optional benefits like a guaranteed minimum income, an increased death benefit or long-term-care insurance.

Advantage: IRA

Taxes

Variable annuities and IRAs offer tax-deferred growth, and withdrawals from variable annuities and traditional IRAs are taxed as ordinary income. (In both cases, early withdrawals -- those made before you reach age 59½ -- carry a 10% tax penalty.)

But while traditional IRA contributions are usually tax-deductible, Roth IRA contributions and contributions to your variable annuity are not. The trade-off? The former requires you to start taking out money by the time you reach 70 1/2, whereas Roths and annuities do not have any required minimum distributions.

Advantage: Too close to call

Contribution limits

IRAs have a $5,000 limit in 2008 -- plus another $1,000 if you're 50 or older -- while variable annuities have no contribution limits. Both types of accounts allow for tax-free rollovers, although rolling over your annuity can result in restarting the clock for the surrender period.

Advantage: Variable annuity

Investment options

Both variable annuities and IRAs allow a measure of control over the underlying investments in your account. With a variable annuity, your investment options are typically limited to a handful of stock or bond funds called subaccounts. What's more, many companies charge fees for changing your asset allocation.

IRAs, meanwhile, allow you to invest your savings in virtually any kind of investment, from stocks to bonds to certificates of deposit. You're generally only limited by the selection offered by your particular broker.

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