Questions:
What is the difference between an Annuity and IRA?

What are the tax implications of an Annuity?

Reference answers:
Both individual retirement accounts (IRAs) and annuities provide tax-advantaged ways to save for retirement, but there are distinct differences between the two. IRA is not in itself an asset. It's a vehicle for holding financial assets stocks, bonds, mutual funds. Annuities are assets specifically insurance products, designed to generate income.

# IRA
An IRA can be thought of as an individual investment and savings account with tax benefits. You open an IRA for yourself (that's why it's called an individual retirement account). If you have a spouse, you'll have to open separate accounts (if one partner earns low or no wages, you can use the family income to open a spousal IRA, to benefit that spouse and double the family's retirement savings options).it is an account in which you keep investments such as stocks, bonds, and mutual funds. An IRA continues to accumulate contributions and interest until you reach retirement age, meaning you could have an IRA for decades before making any withdrawals.

An IRA usually may carry a small custodial fee, which is charged by the financial institution where your account is held. mutual funds within the IRA charge their own annual management fees, called expense ratios.

# Annuity
Annuities are insurance products that provide a source of monthly, quarterly, annual, or lump-sum income during retirement. An annuity makes periodic payments for a certain amount of time, or until a specified event occurs (for example, the death of the person who receives the payments). Money invested in an annuity grows tax-deferred until it is withdrawn.
Unlike an IRA, which typically can have only one owner, an annuity can be jointly owned. Annuities also do not have the annual contribution limits and income restrictions that IRAs have. There are a variety of annuities. You can fund an annuity all at once (known as a single premium) or you can pay into it over time.
With an immediate payment annuity (also called an income annuity), fixed payments begin as soon as the investment is made. If you invest in a deferred annuity, the principal you invest grows for a specific period of time until you begin taking withdrawals usually during retirement As with IRAs, you will be penalized if you try to withdraw funds from the deferred annuity early before the payout period begins.


IRAs and annuities are two types of saving vehicles meant for retirement. But the two are inherently different. The main distinction between an IRA and an annuity is that an IRA is an investment account that is tax-advantaged (you place pre-tax money into the account and pay taxes when the amount is withdrawn at the legally allowed age). An annuity is an insurance product that makes fixed-income payments at a specified time.

Annuity payments are subject to tax based on how the annuity was funded. If your annuity was funded with pre-tax dollars, typically seen in qualified plans, the entire amount of the withdrawals or payments you receive is taxable as income. if your annuity was purchased with post-tax dollars, as with nonqualified plans, you are only taxed on the earnings portion of the withdrawals.
One of the biggest benefits of annuities is their ability to grow on a tax-deferred basis. This includes dividends, interest and capital gains, all of which may be fully reinvested while they remain in the annuity. 
Your investment grows without being reduced by tax payments, but that doesn't mean annuities are a way to avoid taxes completely. Annuities are subject to taxation, and how they are taxed depends on various factors. 
The tax treatment of an annuity is determined by the type of annuity, the source of funds  meaning whether it is held in a qualified or non-qualified account  and the purpose of the annuity.

# Qualified vs. Non-Qualified Annuity Taxation

Annuities are classified as either qualified or non-qualified. 
Qualified annuities are funded with pre-tax dollars, typically through an employer-sponsored retirement plan like a 401(k) or an IRA. Contributions to these annuities are tax-deferred, meaning taxes are paid when withdrawals are made. 
Non-qualified annuities, on the other hand, are funded with after-tax dollars. As such, they require tax payments only on the earnings portion at withdrawal.