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What to do After Your 401K and Traditional IRA

Is a Variable or Fixed Annuity Right for You?


A variable or fixed annuity can be a great retirement vehicle. Variable and Fixed Annuities have some of the same retirement benefits as other retirement plans like the employee sponsored 401K plan and an individual traditional IRA, but an annuity typically doesn't have contribution limits, income limits, or mandatory withdraws like the 401K plan and traditional IRA. And although one's after-tax dollars are used for contributions, the retirement earnings grow tax-free.

Categories of an Annuity

Annuities fall into two categories: fixed annuities and variable annuities. A fixed annuity gives one a pre-determined interest rate on their earnings which is guaranteed for a certain term depending on the contract. Variable annuity premiums are invested among stocks, bonds, and money market accounts similar to the 401K plan and traditional IRA.

Insurance Advantage of Variable and Fixed Annuities

In addition to being a retirement vehicle, variable and fixed annuities also carry an insurance component. Depending on the policy one chooses, insurance choices in variable and fixed annuities include guaranteed death benefits, guaranteed payments for as long as one lives, or even payments for the life of one's beneficiary.

Who Would Benefit Most from a Variable or Fixed Annuity?

Some individuals that especially could benefit from a variable or fixed annuity are individuals that have already maxed out their employee sponsored 410K plan retirement accounts or traditional IRA, and have additional capital to invest. Another good candidate would be an individual who has already retired and fear they might outlive their money. A variable or fixed annuity would give a retiree peace of mind since one can get a variable or fixed annuity policy that would guarantee income for the rest of their life. In addition, anyone who thinks they may be a malpractice target such as a lawyer, doctor, CPA, architect, or financial planner would be a good candidate since annuities are credit protected in many states and therefore would generally be safe from malpractice suits.

Choosing a 401K plan, Traditional IRA, or Annuity

When choosing any investment such as a 401K plan, IRA, or annuity, it is important that one chooses a strong, reputable company to ensure competitive investments. And, since all annuity policies vary, the policy holder will want to compare and understand all fees, surrender charges, and tax advantages of their particular annuity policy.

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