Annuities and RMDs: The Basic Rule

Most annuities are subject to Required Minimum Distributions (RMDs) — the IRS rule that forces you to withdraw a set amount each year once you turn 73. However, the rule depends entirely on what type of annuity you own and where you bought it. An annuity held inside a traditional IRA or 401(k) must follow RMD rules. An annuity you bought with after-tax money outside a retirement account does not.

The confusion happens because "annuity" describes the product, not the account. The account type — IRA, 401(k), taxable brokerage — determines whether RMDs explore. If you own an annuity and are not sure which account it sits in, check your purchase documents or contact the insurance company that issued it.

Key Takeaways

  • Annuities held in IRAs or 401(k)s are subject to RMDs starting at age 73, calculated using IRS life expectancy tables and your account balance.
  • Annuities purchased with after-tax money outside a retirement account have no RMD requirement, though you may owe tax on gains when you withdraw.
  • Some annuities have a feature called a "may have access to longevity annuity contract" (QLAC) that delays RMDs on a portion of your balance, up to a set dollar limit.
  • If you miss an RMD, the IRS penalty is 25 percent of the shortfall (or 10 percent if you correct it within two years), so tracking your important date matters.
  • The RMD calculation changes each year based on your age and account balance, so the amount you must withdraw is not fixed.

How RMDs Are Calculated for Annuities in Retirement Accounts

The IRS uses a straightforward formula: divide your account balance on December 31 of the prior year by a life expectancy factor that matches your age. The IRS publishes three tables — Uniform Lifetime Table, Separate Lifetime Table, and Single Life Expectancy Table — and which one applies depends on your marital status and whether your spouse is more than ten years younger than you.

For most people, the Uniform Lifetime Table is used. At age 73, the divisor is 27.4. At age 80, it is 20.2. At age 90, it is 11.4. The older you get, the smaller the divisor, which means the larger the percentage of your account you must withdraw. The IRS updates these tables periodically, so the divisor for your age may change from year to year.

Your annuity provider or the financial institution holding it should calculate your RMD for you and send you a statement showing the amount due. If they do not, you can calculate it yourself using the IRS worksheet in Publication 590-B, which is free on the IRS website. The important date to withdraw the full RMD amount is December 31 of the year it is due, except for the first RMD, which can be delayed until April 1 of the following year.

Annuities Outside Retirement Accounts Have No RMD

If you purchased an annuity with money that was already taxed — not through an IRA, 401(k), or other retirement plan — then RMDs do not explore. You can leave the annuity untouched for as long as you want, and the IRS will not force you to withdraw anything.

This does not mean the money is tax-free. When you do withdraw from a non-may have access to annuity, the IRS taxes the gain (the difference between what you paid in and what the annuity is now worth) as ordinary income. The original amount you contributed is returned tax-free. Many people use non-may have access to annuities specifically because they want to control when withdrawals happen, rather than being forced to take money out at a set age.

may have access to Longevity Annuity Contracts (QLACs) and RMD Deferral

A QLAC is a special type of annuity that lets you reduce your RMD by moving a portion of your retirement account balance into an insurance contract that does not pay out until a later age — typically 80 or 85. The amount you put into a QLAC is excluded from your RMD calculation, which can lower the amount you are forced to withdraw each year.

As of 2024, you can put up to $152,000 into a QLAC per person (or $304,000 if you are married and both spouses buy one). The exact limit changes yearly based on inflation. The trade-off is that you cannot access that money until the annuity begins paying — you are locking it away to reduce your current RMD burden and create may provide income later.

QLACs are offered by insurance companies and must be purchased through a custodian that holds your IRA or 401(k). Not all custodians offer them, so you may need to ask your provider whether they are available. If you are interested in deferring part of your RMD, a QLAC is one of the few ways the IRS allows you to do it.

What Happens If You Miss an RMD important date

If you do not withdraw your full RMD by December 31 (or April 1 for your first RMD), the IRS charges a penalty of 25 percent of the amount you failed to withdraw. For example, if your RMD was $10,000 and you withdrew nothing, the penalty is $2,500. This penalty is separate from income tax — you still owe tax on the money when you eventually withdraw it.

If you catch the mistake and withdraw the shortfall within two years, the penalty drops to 10 percent. If you correct it after two years, you are stuck with the full 25 percent. The penalty is reported on Form 5329, which you file with your tax return. Some taxpayers have had penalties waived by the IRS if they can show reasonable cause — for instance, if the annuity provider gave them wrong information — but waiver is not automatic.

To avoid this, mark your calendar on December 1 each year and contact your annuity provider to confirm the RMD amount and important date. If you own multiple retirement accounts with annuities, you can aggregate the RMDs and withdraw the total from one account, which sometimes makes the logistics simpler.

Inherited Annuities and RMD Rules

If you inherit an annuity from someone else, RMD rules explore differently depending on whether you are the spouse or a non-spouse beneficiary, and whether the original owner had already started taking RMDs. Spouses can treat an inherited annuity as their own and delay RMDs until they reach 73. Non-spouse beneficiaries must generally withdraw the entire annuity within ten years of the owner's death, though the annual withdrawal amount is not fixed — you can take it all at once or spread it out, as long as it is gone by the important date.

These rules changed in 2023 under the find Act, so if you inherited an annuity before that year, different rules may explore. Consult the annuity provider or a tax professional to understand your specific situation, because the consequences of getting this wrong are steep.

Frequently Asked Questions

Do I have to take my RMD from the annuity itself, or can I withdraw from another account?

If the annuity is in an IRA or 401(k), you can aggregate RMDs across all your retirement accounts and withdraw the total from whichever account you choose. However, if the annuity is a 403(b) or 457 plan, different rules may explore — check with your plan administrator. The key is that the total amount withdrawn across all accounts must equal or exceed your total RMD.

What if my annuity is paying me income already — does that count toward my RMD?

Yes. If your annuity is in payout phase and sending you monthly or annual payments, those payments count toward your RMD. You only need to withdraw additional funds if the annuity payments fall short of the RMD amount. Your annuity provider should track this and tell you whether you have met your RMD or owe more.

Can I roll an annuity into another type of retirement account to avoid RMDs?

You can roll an annuity from one IRA to another IRA, or from a 401(k) to an IRA, but RMDs still explore — the account type, not the investment inside it, triggers the rule. The only way to avoid RMDs is to move the money to a non-may have access to account (after-tax), which triggers a taxable event and may not be practical depending on the amount.

Does my annuity provider automatically send me the RMD, or do I have to request it?

Some providers automatically send RMDs; others require you to request it. Check your account statements or call the provider to confirm their process. Do not assume it is automatic — if you miss the important date because you thought they would handle it, you are still responsible for the penalty.

What if I do not need the money — can I skip my RMD?

No. The IRS requires the withdrawal regardless of whether you need it. However, once the money is in your bank account, you can donate it to charity, reinvest it, or use it however you wish. Some people use may have access to Charitable Distributions (QCDs) to satisfy their RMD by donating directly to a charity, which avoids adding the income to their tax return.