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I meant "once an annuity always an annuity before 59.5 unless you are willing to put up with bad things like 10% penalties and the like."

Unfortunately, "Annuity" has several meanings, and that can confuse the picture.

One can purchase an "unqualified" annuity with after-tax dollars, and it can grow tax deferred. There is no limit on how much one can put in to such an instrument. In this case, yes, there are income tax and 10% penalty to take money out before one is 59.5. What that annuity invests in can be one of various accounts, such as a "guaranteed interest" account, or various investment accounts, sometimes based on publically available mutual funds (but with the Annuity wrapper), sometimes based on in-house investments that work similar to mutual funds but are proprietary to that particular issuer.

An IRA is another account type. It can invest in stocks, stock funds, annuities (including variable annuities), CDs, or money market account or money market fund. Once the money is in an IRA, it is always in an IRA, with specific exceptions, until one is 59.5 years old. (I am brushing aside a lot of details for simplicity sake.) Even if you have an IRA invested in a variable annuity with one custodian, you can still transfer the money in that IRA to another IRA custodian and invest in something else (e.g., from an insurance company's IRA in annuities to a fund family's mutual funds) without paying tax nor federal penalty. (I am acutally taking a lot of liberty here. Typically, upon separation from service, one can typically elect to transfer a 401(k) or 403(b) to a "rollover IRA" and potentially roll it into a future employer's 401(k) or 403(b), respectively, but while it is in the "rollover IRA" it can be invested even in insturments not allowed by a 403(b), such as individual stocks.)

A 403(b) is yet another account type. The old name is "Tax Sheltered Annuity" but it can be invested in mutual funds as well as annuities. (403(b)1 allows annuities as investments; 403(b)7 allows mutual funds as investments.) Again, even if the money within the 403(b) is invested in annuities, one may be able to transfer to another custodian that allows investing in mutual funds, again without tax nor federal penalty.

So when one says "Annuity", one really needs to know if one is talking about an Unqualified Annuity (in which case it has to remain within the annuity wrapper until one is 59.5 or suffer tax and 10% federal penalty), or if one is referring to one of the other account types (IRA, Roth IRA, 401(k), 403(b)) that just happens to invest in annuities, among other possibilities.

Believe me, the same types of distinctions have to be made when people talk of mutual funds--the "mutual fund" label applies to the investment type, but not what kind of account holds that investment, and tax and penalty laws depend on the account type (regular account, IRA, Roth IRA, 401(k), 403(b)7, etc.), not the investment type.

If this confuses you, think of a personal (taxable) account, unqualified annuity, 401(k), 403(b), IRA, Roth IRA as types of boxes, and think of mutual funds, annuities (including variable annuities), CDs, money market funds, and money market accounts as possibilities of what can go inside the box. (Not all boxes can hold all types of investments.)

As you can see, "Annuity" (unqualified annuity, tax sheltered annuity) can refer to the box or (401(k), 403(b), IRA, Roth IRA) to the contents of the box.
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