Most 401(k) plans allow employees to invest in a wide variety of funds—target-date funds, passively managed index funds, and actively managed mutual funds. Some plans also give you the option to invest in annuities.

An annuity is an agreement between you and an insurance company. You make a lump-sum payment or a series of payments into the annuity. The insurance company repays you with a regular series of payments either immediately or at some point in the future, such as after you retire.

Annuities are a good way to fund retirement for some people, and they are becoming more common in 401(k) plans. Employers ultimately have a legal responsibility to ensure that they offer “prudent” investments through their 401(k) plans, and offering annuities entails the risk that an insurance company might go bankrupt. The 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act reduced this risk and made annuities a safer option for employers.

If your 401(k) does of🥀fer annuities, however, they could be a good option for retirement, depending on your circumstances.

Types of Annuities for Your 401(k)

Before you put an a𒈔nnuity in your 401(k), it’s worth making sure that you understand the types that may be available to you. The optioꦓns can be complex.

Beyond a simple fixed immediate annuity, you might be able to buy a far more complicated and expensive 澳洲幸运5开奖号码历史查询:variable annuity or a slightly less complicated and expensive 澳洲幸运5开奖号码历史查询:indexed annuity.

Another popular choice is a 澳洲幸运5开奖号码历史查询:qualified longevity annui💛ty contract (QLAC). This is a type of advanced life 澳洲幸运5开奖号码历史查询:deferred annuity funded through a qualified retirement plan, such as a 401(k) or an 澳洲幸运5开奖号码历史查询:individual retirement account (IRA).

Beginning Jan. 1, 2022, an individual can use up to $145,000 of their retirement savings account to buy a QLAC. The advantage of a QLAC is that the 澳洲幸运5开奖号码历史查询:required minimum distributions are 澳洲幸运5开奖号码历史查询:tax-deferred.

Advantages of Buying an Annuity in Your 401(k)

If you’ve decided that an annuity♎ is right for you, you may have several options for how to b♐uy one. Here are the advantages of doing so via your 401(k):

• Potentially higher payouts. Your employer may have more weight when it comes to negotiating annuity rates. It might not be, though, so make sure you check each option carefully.
• Non-gendered pricing. Annuity prices normally reflect life expectancy, and women live longer on average. In a 401(k), all participants must be offered the same prices and deals. That makes this a better deal for women (and, possibly, a worse deal for men).
• Peace of mind. The annuity provider is likely to have been carefully vetted by your employer, which has fiduciary responsibility for the security of your plan.
• You may have no choice if you want an annuity. Many older employees find that most of their retirement money is tied up in a 401(k). An option to buy one through a 401(k) is convenient and avoids a complex and possibly expensive property refinance.
  

Disadvantages of 🅘Buying an Annuity in Your 401(k)🌃

As with every investment decision, there 🦂are potential downsides to buying an annuity via your 401(k).

• Annuities typically offer lower growth than stocks or 澳洲幸运5开奖号码历史查询:exchange-traded funds (ETFs). This is a fact whether you invest in the annuity through your 401(k) or buy one on the open market.
• Annuities have the same tax advantages as 401(k) plans. That means you lose the opportunity to double down on tax advantages by investing separately in an annuity. Granted, many people don’t have the kind of money it takes to fund both types of accounts.
  

The Bottom Line

If you’d li꧂ke to invest in an annuity as part of your retirement portfolio, you may be able to do so through your 401(k). Some employers allow employees to buy🎃 annuities via their 401(k) plans.

If you can buy an annuity in thi𓃲s way, it may offer advantages. You may get a better rate than what’s available for annuities on the open market, and your employer should have vetted the annuity provider to reduce your risk.

On the other hand, since annuꦇities offer the same tax benefits as 401(k) accounts, it’s ofte🌜n better to buy an annuity separately with money that otherwise would be taxed if you can afford it.