Individual retirement annuity (IRAnnuity)

Definition

Individual retirement annuity (IRAnnuity )is the annuity-contract version of an individual retirement arrangement, and is issued by an insurance company. There are several versions of an IRAnnuity, (a) traditional IRAnnuity, where assets accrue earnings on a tax-deferred basis and distributions are treated as ordinary income, (b) Roth IRAnnuity, where assets accrue on a tax-deferred basis, but qualified distributions are tax-free (c) SEP IRAnnuity, which are established and funded by business owners/employers for their employees.

The funding vehicle for a SEP IRA is a traditional IRA and (d) SIMPLE IRAnnuity, are established and funded by business owners/employers for their employees. Employees may also make salary deferral contributions to SIMPLE IRAnnuity, and versions of SEPs that are referred to as SARSEPs.

 Individual retirement account, which is the ‘account’ version of an individual retirement arrangement. The account can be established at a bank, credit union, brokerage firm, savings & loan, or other financial institution that satisfies the requirements established under the tax code IRC § 408(n)

Referring Cite

IRC § 408(b), IRS Publication 590

Additional Helpful Information

Individuals may contribute up to 100% of their taxable compensation/income up to the dollar limit that is in effect for the year to their traditional and/or Roth IRAnnuities. Individuals who reach age 50 by the end of the year may contribute additional amounts referred to as ‘Catch-up’ contributions.

The dollar limits for 2002 to 2009 are as follows:

 An individual can split the annual limit between a traditional and a Roth IRAnnuity, or contribute the entire amount to either. Eligibility requirements apply to Roth IRAnnuity contributions.

 These contributions must be made in cash

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