Can you have an annuity in a Roth IRA?
The Annuity Man
Annuities are contractually guaranteed transfer of risk strategies that are issued by life insurance companies. Most annuity types solve for lifetime income, and that benefit is unique to the annuity category. Regardless of the type of annuity, they can be held in any type of account...including Roth IRAs, Traditional IRAs, or non-IRA structures. The only difference is how the annuity distributions are taxed. The contractual guarantees are the same.
For example, a lifetime income stream coming from a Single Premium Immediate Annuity (SPIA) inside of a Roth IRA would be tax-free. Any money coming out of a Roth IRA, regardless of the type of investment, is tax-free. So that includes annuities.
The real question is should you place an annuity inside of a Roth IRA? As I always say when people ask about annuities, there's no perfect answers...just bad sales pitches. It all comes down to what you are trying to achieve. The 2 questions I use are, 1) What do you want the money to CONTRACTUALLY do? 2) When do you want those CONTRACTUAL guarantees to start? From those 2 answers, you can then match up with the annuity type that can provide the highest contractual guarantee for your specific situation.
In my opinion and in a perfect world, Roth IRAs should be used for pure market growth strategies...which would not involve annuities. But once again, it all comes down to what you are trying to achieve. Just remember that annuities are contracts, and should only be purchased for their contractual guarantees.
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