He Bought a $300,000 Annuity Inside His IRA for the Tax Deferral. The IRA Was Already Tax-Deferred, but the Fees Were Real.

Buying an annuity inside an IRA duplicates the tax deferral the account already provides for free, while also adding fees of 1% to 3% or more annually. With 52-week T-bills yielding 4.02% and I-bonds at 4.26%, annuity fees directly erase returns available risk-free inside the same IRA. Average Boomer IRA balances of $257,002 mean an annuity purchase often consumes an entire account, concentrating fee drag on every dollar saved.

Many financial professionals are salespeople paid on what they push, not whether you end up wealthier. A fiduciary is the opposite. The SEC legally requires them to put your interests first.

Advisor.com's free matching tool pairs you with vetted fiduciaries from major national firms, all in under three minutes. See who you match with today. The decision at the center of this story is one financial planners see often: a retiree moves $300,000 from an existing IRA into a variable or fixed annuity held inside that same IRA, with the pitch centered on tax deferral.

The problem is structural, as an IRA already provides tax deferral. Wrapping an annuity inside an IRA duplicates a benefit the account already provides and adds a fee layer on top of one that already exists, during a period when risk-free yields are the highest they have been in over a year. This article looks at the arithmetic of that decision using current benchmark rates, the size of the U.S. annuity and IRA markets, and the average IRA balance by generation.

The purpose is to help readers evaluate a common sales pitch against the alternatives available in the same account. Most Americans suspect they're behind on retirement and never find out. Advisor.com's free matching tool pairs you in about three minutes with a vetted fiduciary advisor who can help you with investing, taxes, retirement, estate planning, and more.

Find out where you stand. Investment growth sheltered from annual taxation is what an IRA provides, and so does an annuity. Placing the second inside the first duplicates a benefit the account already provides.