What are the advantages of an IRA vs an annuity?

The most obvious advantage of an Individual Retirement Account or IRA over a variable annuity is that IRAs contributions are significantly less expensive. The fees of variable annuities can cost between 2 to 3 percent a year and the investment options are limited and also have high underlying expense ratios, according to Forbes.

An IRA is a type of account offered by a financial institution where an individual can save up money for retirement. The account holder can choose to invest the funds in his IRA, such as in bonds or mutual funds, to make it grow. IRAs qualify as a retirement product, which means that its earnings are tax-deferred.

Variable annuities, on the other hand, are a type of mutual fund account with an insurance component to it, states Forbes. Just like an IRA, the account holder of a variable annuity can also invest the funds in the account to make it grow. However, annuities do not qualify as a retirement product, which means that it does not receive tax deductions.

Agents of variable annuities often pitch their product as an option where future retirees can invest their IRA. However, a variable annuity can be a costly way to hold an IRA, notes CNN Money. It's advisable to stick with a traditional IRA and then use the earnings to purchase a term life insurance policy.