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