Should I Put My IRA in an Annuity? The Tax Deferral Is Already There

The tax deferral is already there

The SEC puts it plainly: if you are investing in a variable annuity through a 401(k) plan or IRA, "you will get no additional tax advantage from the variable annuity." It adds that you should consider one only if it makes sense because of its other features, such as lifetime income payments and death benefit protection (SEC, Variable Annuities: What You Should Know, page modified April 18, 2011).

FINRA says the same about annuities generally: inside an IRA or 401(k), "you get no additional tax advantages" (FINRA, Annuities, checked October 14, 2026).

A rollover pitch often leads with "tax-deferred growth." That is true, but it is also true of the IRA you already have. What an annuity can add is a guarantee: a fixed rate, protection from index losses, or income for life. The fair question is whether that guarantee is worth its cost and the loss of access.

What changes when IRA money goes into an annuity

• Access. A deferred annuity usually has a surrender schedule. Ask whether withdrawals to meet your required minimum distributions are free of the charge in your contract.
• Costs. Variable annuities typically charge about 1.25% a year for mortality and expense risk plus about 0.15% in administrative fees, before fund and rider costs (SEC, Variable Annuities: What You Should Know, page modified April 18, 2011). Fixed and indexed annuities build their cost into the rate or cap. See annuity fees.
• RMDs still apply. Required minimum distributions generally start at age 73 (IRS, RMD FAQs, checked October 14, 2026). Before you annuitize, the RMD is based on the contract value plus the actuarial present value of certain extra benefits, which can include rider values (26 CFR 1.401(a)(9)-6, eCFR, checked October 14, 2026).
• You can draw the RMD elsewhere. If you own more than one traditional IRA, you figure each RMD separately but may take the total from any one or more of them (IRS, Publication 590-B, 2025). 401(k) RMDs work differently. See annuities in an IRA.

Rolling a 401(k) into an annuity: what you might give up

A rollover is a large, one-time sale, so it deserves extra care.

• The age 55 rule. Leave a job in or after the year you turn 55 and 401(k) withdrawals from that plan can avoid the 10% early tax. That exception is listed for qualified plans, not IRAs (IRS, Publication 575, 2025).
• Still working. If you keep working, you can generally delay RMDs from your current employer plan until you retire, unless you own 5% of the business (IRS RMD FAQs, checked October 14, 2026). IRAs have no such delay.
• Withholding. If a rollover check is paid to you, the plan must generally withhold 20% for tax; a direct rollover to the new trustee avoids that (IRS Publication 575, 2025).
• Plan costs. Large employer plans can offer low-cost funds. Compare those costs line by line with the annuity's.

Under the 2020 revisions to the NAIC model rule, sellers may not put their financial interest ahead of yours, and 40 states had adopted it as of November 1, 2023 (NAIC, Annuity Suitability and Best Interest Standard, November 1, 2023). Ask for the written reason this rollover is in your best interest.

When an annuity inside an IRA can make sense

• Income for life. Turning part of an IRA into an immediate annuity can cover basic bills alongside Social Security. Scheduled annuity payments that meet the IRS rules can satisfy the RMD for that contract. See turning a 401(k) into income.
• A qualifying longevity annuity contract (QLAC). Up to $210,000 for 2026 can go into a QLAC (IRS, Notice 2025-67, November 13, 2025), and that amount is left out of your RMD balance. Payments must start by the first day of the month after your 85th birthday (26 CFR 1.401(a)(9)-6(q), checked October 14, 2026).
• A guaranteed rate on a slice of the IRA you will not need during the term, as an alternative to CDs.

In each case, the reason is the guarantee, never the tax deferral.

How to check before you sign

Before you sign, look up the company and the person. Your state insurance department licenses both; find yours through the NAIC list of state insurance departments. The NAIC Consumer Insurance Search shows complaint information on insurers. If the product is a variable annuity or a registered index-linked annuity, the seller must also be registered with FINRA, which you can check on FINRA BrokerCheck.

After delivery you have a free-look period to cancel without surrender charges. Its length is set by your state and generally runs 10 to 30 days (FINRA, Annuities, checked October 14, 2026). See how the free-look period works.

A plain example with numbers

Hypothetical: a 73-year-old single IRA owner with $400,000 at December 31. The Uniform Lifetime Table divisor at 73 is 26.5 (IRS Publication 590-B, 2025). Here is the first RMD under three choices.

Arithmetic: $400,000 / 26.5 = $15,094. $190,000 / 26.5 = $7,170. An ordinary annuity inside the IRA does not lower the RMD; if its riders add value, the counted balance can go up. Only the QLAC removes money from the calculation, and it does so by locking that money until income starts. The income is then fully taxable.

A lower RMD in your 70s means less taxable income in those years, which can help keep you under a tax bracket or a Medicare premium line; see how IRMAA works.

Sources

The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.