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I'm currently working at a contract position with no 401k but want to save on my own until I'm either hired permanently or take a new position. Could you explain the differences between an annuity and IRA?

If possible I would like to be able to transfer funds from my checking to one of these accounts and possibly roll the account over to a 401k when I have one. Also, is there a yearly maximum that can be contributed?

Thanks

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    If you are (taxed as) self-employed, you can open a 'solo' 401k that covers only you and possibly your spouse, with substantially higher contribution limits than an IRA. – dave_thompson_085 Jul 15 '17 at 3:29
  • Would you have to be a 1099 instead of W2 for this? – Rich Jul 15 '17 at 14:24
  • You must have self-employment income, which for your situation would likely be on 1099-MISC although not all self-employment income is. You can have other W-2 income in addition -- and even a retirement plan with that employer as long as your total contributions stay within the limits. This IRS page is a good starting point. – dave_thompson_085 Jul 15 '17 at 15:33
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An IRA is a type of account. It can hold a variety of investments, including stocks, ETFs, or mutual funds. It has a tax favored status, and rules regarding how much you can invest each year.

Annuities are insurance products. Different regulations apply. For some people approaching retirement, an immediate annuity may make sense. Other than that type, most annuities exist to fund the college and retirement accounts of the person selling them. Buyer beware.

  • Another difference is that you can withdraw as much or as little as you want from an IRA account - with penalties if under 60, and subject to required minimum distribution if over 70. An annuity generally pays a fixed amount per month or year. – jamesqf Jul 17 '17 at 17:38
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an IRA leaves you in control of the investments. Your choices result in either large or small gains, dependent on the investment decisions you make. Whether you make "good" or "bad" choices, at least those happen inside a tax preferred account.

an annuity doesn't give you control. And the long term returns are almost always worse than an IRA.

The other benefit of an IRA is that it passes to your spouse or whoever you designate at death. Most annuities die with you. Annuities are insurance products: if you want income insurance, then an annuity might work. But as an investment vehicle, they're pretty crummy.

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