Annuities and stock investments each have benefits. These benefits overlap if you invest your annuity in nothing but stocks.

To make an apples-to-apples comparison between the two investment types, you can compare stock investments in your regular brokerage account to non-qualified annuities.

Likewise, compare stocks you hold in a retirement account to qualified annuities. You can buy annuities that lock in your return, however, which isn't something you can do with stock investments.

What Is the Difference Between Annuities, Stocks & Bonds? - Budgeting Money

Non-qualified annuities offer a tax break. The money you contribute grows tax-deferred until you cash out the annuity. This allows your investments to grow faster because they don't suffer a tax drag. You can choose from different types of non-qualified annuities that affect what you can invest in and how long the annuity will last.

For example, if you buy a variable annuity, you can invest in stocks, bonds, mutual funds and other investments. You can purchase a life annuity, which makes payments for the rest of your life, no matter how long you live. Whatever type you buy, most annuities provide a death benefit to your beneficiaries. You'll also want to know all the taxes and fees associated with your non-qualified annuity. If you cash in an annuity before it begins paying out, you might have to pay substantial surrender fees to the annuity provider.

Annuities vs Stocks

You can invest in the stock market in many ways, including stocks, options, convertible bonds, mutual funds and exchange-traded funds. You get a tax-break on profits from stock market investments that you hold for more than one year, namely the capital gains tax rate.

This rate ranges from 20 percent down to 0 percent, depending on your gross income. This same rate also applies to any qualified dividends you receive from your stock investments. Unlike annuities, you never have to cash in your stock holdings and can bequeath them to a beneficiary. Inherited stocks receive a new cost basis on the day the deceased dies. The effect is that a beneficiary treats the stocks as if they were purchased at the prices that existed on the deceased's final day.

This reduces the capital gains when the beneficiary sells the stock. You can sell your stocks any time without early-withdrawal penalties. You hold qualified online broker optionsscheine in an employer plan or an individual retirement account.

These annuities normally have no cost basis because you deduct your contributions. Because they have no cost basis, you include all of your annuity distributions, whether lump sum or periodic, in your taxable income. In addition to taxes, qualified annuities are subject to the early-withdrawal penalty.

The tax situation changes if you hold a qualified annuity in a Roth account. You receive no tax deduction for contributions to a Roth annuity but distributions are tax-free to you and your beneficiaries.

Application Error Occurred

Stock market vs annuity normally can invest in stocks through your employer plan or IRA. Some employer plans might limit your investments or choose them for you. Sheltered stock investments share the same tax benefits as those available from qualified annuities. In fact, a qualified annuity invested in stocks should perform similarly to the same portfolio held directly in an IRA or employer plan. However, you avoid the annuity management and surrender fees if you invest your retirement account directly in stocks.

Naturally, you can divide your retirement investments between annuities and stock investments. Based in Chicago, Eric Bank has been writing business-related articles sinceand science articles since His articles have appeared in "PC Magazine" and on can u make money selling weed websites.

He holds a B. He also holds an M. Each week, Zack's e-newsletter will address topics such as retirement, savings, loans, mortgages, tax and investment strategies, and more. At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors.

This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. These returns cover a period from and were examined and attested by Baker Tilly, an independent accounting firm.

Visit performance for information about the performance numbers displayed above. Skip to main content.

Tips for Self-Directed IRA Transactions Download | IRA Resources

More Articles Can I Convert a Non-Qualified Annuity to a Roth IRA? Can You Deduct the Loss on a Non-Qualified Variable Annuity? The Advantages of Tax-Managed Stocks ETF Vs. Non-Qualified Annuities Non-qualified annuities offer a tax break. Stock Investments You can invest in the stock market in many ways, including stocks, options, convertible bonds, mutual funds and exchange-traded funds. Qualified Annuities You hold qualified annuities in an employer plan or an individual retirement account.

Tax-Sheltered Stock Investments You normally can invest in stocks through your employer plan or IRA. References 3 All Things Annuity: Publication Pension and Annuity Income Oblivious Investor: Dividend and Long-Term Capital Gain Tax Rates for Resources 3 The Wall Street Journal: Retirees Should Have More Annuities, Fewer Stocks CNN Money: Index Annuities Are a Safety Trap The Wall Street Journal: A Guide to Annuities and Retirement Income.

About the Author Based in Chicago, Eric Bank has been writing business-related articles sinceand science articles since Recommended Articles Comparison of Real Estate Investments With Stock Portfolio Investments The Transfer of Ownership of a Non-Qualified Annuity How to Predict Earnings Using a Stock Chart How do I Convert Stock Market Prices Into Returns?

Can an IRA Be Rolled Into an Existing Annunity? Rules for Inheriting an IRA Annuity Can an IRA Contribution Roll Into a k? Can Annuities Lose Money? Money Sense E-newsletter Each week, Zack's e-newsletter will address topics such as retirement, savings, loans, mortgages, tax and investment strategies, and more. Editor's Picks How to Report an IRA Rollover Gift How Much Can You Contribute to an IRA Annuity? Can an Inherited Non-Qualified Annuity Be Rolled Over Without Tax?

Can Nonqualified Annuity Be Rolled Into a Roth Account?

Trending Topics Latest Most Popular More Commentary. Quick Links Services Account Types Premium Services Zacks Rank Research Personal Finance Commentary Education. Resources Help About Zacks Disclosure Privacy Policy Performance Site Map. Client Support Contact Us Share Feedback Media Careers Affiliate Advertise. Follow Us Facebook Twitter Linkedin RSS You Tube. Zacks Research is Reported On: Logos for Yahoo, MSN, MarketWatch, Nasdaq, Forbes, Investors. Logo BBB Better Business Bureau.

NYSE and AMEX data is at least 20 minutes delayed. NASDAQ data is at least 15 minutes delayed.