Printable checklist for your desk
Print this checklist and bring it to any conversation about annuities in a retirement account.
Download the PDF (large print)The short version. An IRA or 401(k) already defers tax. The SEC says tax deferral provides no extra benefit inside an IRA or 401(k), so any reason to put an annuity there should be about its other features, not the tax treatment. [1, 2]
Why this question comes up
The NAIC notes that you can buy an annuity to fund an IRA, but you can fund an IRA other ways and get the same tax advantages. The SEC guide adds that you get no additional tax advantage from a variable annuity held this way. Consider an annuity there only if you want its other features, and pay attention to what you are charged for them. [3, 2]
The rules that still apply
| Rule | What the IRS says | Source |
|---|---|---|
| Early withdrawals | A 10% additional tax generally applies to the taxable part of IRA distributions before age 59 and a half. Exceptions include death, disability, and substantially equal periodic payments. | [4] |
| Required withdrawals | Withdrawals generally must start in the year you reach your required age, and Roth IRAs have none during the owner's lifetime. See our RMD guide for the age by birth year. | [5] |
| Annuity inside an IRA and RMDs | You may combine the annuity value with the balance of other IRA money for the calculation, and reduce the required amount by annuity payments received that year. IRS notes special rules may apply to an individual retirement annuity. | [6] |
| Death | The ten-year rule for inherited retirement accounts applies. See our death benefit guide. | [6] |
Longevity annuities (QLACs)
A qualified longevity annuity contract is bought with retirement account money and can push part of the required withdrawals to a later age. For 2026 the premium limit is $210,000, payments must begin no later than the first day of the month after the 85th birthday, and the contract cannot be a variable, indexed, or similar contract. See Types of Annuities. [7]
Inside a workplace plan
Some workplace plans offer annuity options. What is offered, and how it can be moved if you change jobs, differs from plan to plan, so ask your plan administrator for the written plan documents. For options when leaving an employer, see Old 401(k) Options. Rollovers need careful handling to avoid an unintended taxable event. [8]
Reasons people consider it, and the cost
- Income they cannot outlive. An income feature can be a reason to consider an annuity, but regulators remind you the guarantee depends on the company and the feature costs extra. [1, 3]
- Costs. Compare all charges against a low-cost alternative that provides the same tax treatment. [1, 9]
- Liquidity. Surrender charges can apply on top of the 10% additional tax if you take money out early. See Surrender Charges and Liquidity. [3]
Questions to ask before buying an annuity inside a retirement account
- Since the account is already tax-deferred, what does this annuity provide that I could not get another way?
- What are all the charges, compared with an alternative in the same account?
- How do the required withdrawals work for this contract, and who calculates them?
- What happens if I need money before age 59 and a half?
- If I want to move this money later, what does it cost and how is it reported?
Frequently asked questions
Do I get extra tax deferral from an annuity inside an IRA?
No. The SEC says tax deferral provides no extra benefit inside an IRA or 401(k), so any reason to buy should be about the annuity's other features.
Do required minimum distributions apply to an annuity in an IRA?
Yes. The IRS says you may combine the annuity value with other IRA balances and reduce the required amount by annuity payments received that year. Special rules may apply to an individual retirement annuity.
What is the 2026 QLAC limit?
$210,000 for 2026 under IRS Notice 2025-67. Payments must begin by age 85 and the contract cannot be variable or indexed.
Sources and review notes
- SEC Investor.gov: Variable annuities (no extra tax benefit in an IRA or 401(k))
- SEC: Guide to variable annuities
- NAIC: Buyer's Guide to Fixed Deferred Annuities (revised 2013)
- IRS Topic 557: Additional tax on early distributions from traditional and Roth IRAs
- IRS: Retirement plan and IRA required minimum distribution FAQs
- IRS Publication 590-B: Distributions from IRAs
- IRS Notice 2025-67: 2026 amounts, including the QLAC premium limit
- New York DFS: Annuity products
- Texas Department of Insurance: Annuities consumer guide
About this guide. This is general education, not tax, legal, or investment advice, and it is not a recommendation to buy or not buy any product. Nazim Lokhandwala is a licensed insurance professional who offers fixed and indexed annuity products. He does not offer variable annuities or registered index-linked annuities. This guide covers every type so you can compare, and an annuity is not the right choice for everyone. Annuity guarantees depend on the claims-paying ability of the issuing insurer. Product features, rates, and rules vary by company and by state, so read your contract and ask the seller to explain anything that is unclear.