Individual Retirement Accounts (IRAs) and annuities both provide the opportunity to grow money on a tax-deferred basis, but there are differences between the two. An IRA can be thought of as an individual savings account with tax benefits. You open an IRA for yourself (that's why it's called an individual retirement account) and if you have a spouse, you'll have to open separate accounts. An important distinction to make is that an IRA is not an investment itself; rather, it is an account where you keep investments such as stocks, bonds and mutual funds. You get to choose the investments in the account, and can change the investments if you wish. Your return depends on the performance of the investments held in the IRA. An IRA continues to accumulate contributions and interest until you reach retirement age, meaning you could have an IRA for decades before making any withdrawals.

IRAs are defined and regulated by the IRS, which sets eligibility requirements, limits on how and when you can make contributions, take distributions, and determines the tax treatment for various the various types of IRAs. For example, for 2014 the maximum you can contribute to your traditional or Roth IRA is the smaller of $5,500 ($6,500 if you're age 50 or older) or your taxable income for the year. Traditional IRA regulations allow you to take early withdrawals under certain circumstances, and if you have a Roth, you can withdraw contributions at any time, but will pay a penalty if you withdraw any interest earnings.

Conversely, annuities are insurance products that provide a source of monthly, quarterly, annual or lump sum income during retirement. An annuity makes periodic payments for a certain amount of time, or until a specified event occurs (for example, the death of the person who receives the payments). Unlike an IRA, which can have only one owner, an annuity can be jointly owned. Annuities do not have the annual contribution limits and income restrictions that IRAs have.

You can “fund” an annuity all at once – known as a single premium – or you can pay over time. With an immediate annuity (also called an income annuity), fixed payments begin as soon as the investment is made. If you invest in a deferred annuity, the principal you invest grows for a specific period of time until you begin taking withdrawals – typically during retirement. Annuities typically have higher expenses than IRAs, and if you take early withdrawals you'll owe a penalty.

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