Annuity RMD rules: when annuities need required minimum distributions

An annuity is subject to required minimum distributions (RMDs) only if it sits inside a tax-deferred retirement account, such as a traditional IRA, a 403(b) or another employer plan. Those "qualified" annuities follow the same RMD starting age and deadlines as any other retirement money. A non-qualified annuity, bought with money that has already been taxed, has no lifetime RMDs at all, although it does have distribution rules that apply after the owner dies.

The detail that trips people up is how the RMD is worked out. Before the contract is annuitized, the RMD is calculated from the contract's value, much like a brokerage IRA. Once the contract is paying a lifetime or period-certain income, the annuity payments themselves can satisfy the requirement. This guide walks through both stages, the special cases (QLACs, partial annuitization, aggregation across accounts) and the mistakes I see most often. It is general education, not tax advice.

Which annuities have RMDs and which do not

The tax wrapper decides the answer, not the type of annuity. A fixed annuity, a fixed index annuity and a variable annuity can each be qualified or non-qualified depending on where the money came from. If you are unsure which you hold, our guide to qualified vs non-qualified annuities explains how to tell from the contract and your tax forms.

Where the annuity is held	Lifetime RMDs for the owner?	After-death distribution rules?
Traditional IRA (including SEP and SIMPLE IRAs)	Yes	Yes, under the inherited IRA rules
403(b), 401(k) or other employer plan	Yes, with possible "still working" deferral for plan accounts	Yes, under the plan and IRS rules
Roth IRA	No, while the original owner is alive	Yes, for most beneficiaries
Non-qualified (after-tax money, outside any retirement account)	No	Yes, under IRC §72(s)

So a 78-year-old with a large non-qualified deferred annuity has no obligation to take anything out during their lifetime. The same person holding the same contract inside a traditional IRA must take an RMD every year once they reach their required beginning age.

When RMDs start for a qualified annuity

The RMD starting age is set by federal law and has moved several times in recent years. Under the SECURE 2.0 Act, it is 73 for people born from 1951 through 1959 and 75 for people born in 1960 or later. The first RMD can be delayed until April 1 of the year after you reach that age, but the second one is still due by December 31 of that same year, which can stack two taxable distributions into one tax year. Our guide to the required minimum distribution age covers the timing rules in full.

For annuities inside employer plans, the "still working" exception may let you defer RMDs from that plan until you retire, provided you do not own more than 5% of the employer and the plan allows it. That exception does not apply to IRAs.

How the RMD is calculated before annuitization

While a qualified annuity is still in its deferral (accumulation) phase, it is treated much like any other IRA or plan account. The RMD for a year is the prior December 31 value of your interest in the contract, divided by the life expectancy factor from the IRS Uniform Lifetime Table (or the Joint Life table if your sole beneficiary is a spouse more than ten years younger).

There is one annuity-specific wrinkle. For a deferred annuity inside an IRA, the value used is not always just the cash or account value printed on your statement. IRS regulations require the "entire interest" in the contract to include the actuarial present value of certain additional benefits, such as some enhanced death benefits or guaranteed living benefits, unless an exception applies. In practice the insurer usually calculates this figure and reports it to you as the fair market value for RMD purposes, so the number used for your RMD can be slightly higher than the surrender value. Ask the insurer which figure it reports and use that one.

An illustrative example

Assume, purely for illustration, that a 75-year-old has a fixed index annuity inside a traditional IRA with a reported fair market value of $200,000 on December 31 of the prior year. Using a Uniform Lifetime Table divisor of 24.6 for age 75, the RMD would be about $8,130 for the year ($200,000 ÷ 24.6). The divisor comes from the IRS table in effect for the year, and your actual figure depends on your own age, value and table. Verify the current table and value before acting, or use our RMD calculator as a starting point.

Most deferred annuities allow a penalty-free withdrawal of around 10% of the contract value each year, and many insurers waive surrender charges for withdrawals needed to satisfy an RMD from that contract. That waiver is a contract feature, not a legal right, so check the contract before relying on it, especially if you take the RMD for several IRAs from this one annuity.

How RMDs work once the annuity is paying income

When a qualified annuity is annuitized into a stream of payments that meets the IRS requirements, the payments themselves satisfy the RMD for that contract. You do not separately divide a balance by a table factor, because there is no longer an account balance in the usual sense.

The regulations set conditions on those payments. In broad terms, they must:

• start by the required beginning date, if annuitization is how you plan to meet the rule;
• be paid at least annually and be non-increasing, except for permitted increases such as cost-of-living adjustments, certain constant percentage increases, or a return of premium on death;
• run over a life, joint lives, or a period certain that does not exceed the limits in the regulations.

Most standard life-only, joint and survivor, and period-certain payouts offered by insurers are designed to meet these requirements. The final RMD regulations issued in 2024 also allow certain commutation (lump-sum) features where the lump sum is calculated on reasonable actuarial assumptions.

The practical consequence is that a fully annuitized IRA annuity can sometimes pay more than the table-based RMD would have required, and occasionally less in the early years. Either way, the RMD for that contract is satisfied as long as the payments comply.

Partial annuitization and aggregation

Many retirees annuitize only part of their IRA or plan money. Historically, that created an awkward result: the annuitized portion satisfied its own RMD, and the remaining account balance needed its own separate RMD, even if the annuity payments were far larger than the combined minimum would have been.

SECURE 2.0 addressed this. It allows an owner to elect to aggregate the value of the annuity with the remaining account and treat the annuity payments as counting toward the total RMD. The 2024 final regulations implement this for defined contribution plans, and the IRS has addressed the IRA side in further guidance. Whether you can use the election depends on your plan or IRA custodian supporting it and on how the annuity's value is determined, so confirm with them before assuming the excess annuity income covers your other accounts.

Aggregating RMDs across accounts

Separate from that election, the ordinary aggregation rules still apply:

• IRAs: you calculate the RMD for each traditional IRA (including IRA annuities) separately, then can take the total from any one or more of your IRAs.
• 403(b)s: you can total the RMDs across your 403(b) accounts and take the amount from any of them.
• 401(k)s and other plans: each plan's RMD must come from that plan.

You cannot mix categories. An RMD due from a 401(k) cannot be taken from an IRA annuity, and vice versa.

QLACs and RMDs

A qualifying longevity annuity contract (QLAC) is the main exception that lets you keep part of your IRA or plan money out of the RMD calculation. The premium paid into a QLAC is excluded from the account value used to calculate RMDs until the QLAC starts paying, which must happen no later than age 85. The amount you can put into QLACs is capped by a dollar limit that is indexed for inflation, so check the current IRS figure in the year you buy. Our QLAC guide explains the trade-offs, including the loss of liquidity and the inflation risk of a fixed income that starts years later.

Non-qualified annuities: no RMDs, but after-death rules

A non-qualified annuity has no lifetime RMDs, which is one reason people use them for long-term tax deferral. The trade-off arrives at death. Under IRC §72(s), a non-qualified contract must generally either be distributed within five years of the owner's death or be paid out over the beneficiary's life or life expectancy starting within one year. A surviving spouse named as sole beneficiary can usually continue the contract as the new owner. Our article on inherited annuities covers the beneficiary options in detail.

These are not "RMDs" in the IRA sense, but they work in a similar way: tax deferral ends on a timetable set by law.

What happens if you miss an annuity RMD

Missing an RMD from a qualified annuity triggers the same excise tax as missing any other RMD. Under SECURE 2.0 it is 25% of the shortfall, reduced to 10% if the shortfall is corrected within the correction window set out in the law. The IRS can also waive the tax for reasonable error if you take the missed amount and request relief on Form 5329. The annuity itself is not penalised; the tax is on you as the account owner.

Common causes I see:

1. Assuming an IRA annuity "doesn't count" because it is an insurance product.
2. Using the surrender value instead of the fair market value the insurer reports for RMDs.
3. Taking the IRA RMD from a 401(k) or the other way round.
4. Annuitizing part of an IRA and forgetting the remaining balance still needs its own RMD where no aggregation election was made.

A practical checklist

Before your RMD deadline each year, it is worth confirming:

• whether each annuity is qualified, non-qualified or Roth;
• the December 31 fair market value the insurer reports for any deferred IRA annuity;
• whether any contract is annuitized and whether its payments satisfy the RMD for that contract;
• whether the insurer waives surrender charges for RMD withdrawals;
• whether the custodian supports the partial-annuitization aggregation election, if relevant.

IRS rules, tables and limits change, and contract terms vary by insurer, so verify current figures with the IRS, your insurer and a tax professional before acting.

Frequently asked questions

Do I have to take an RMD from my annuity?

Only if it is held in a traditional IRA, 403(b) or other tax-deferred retirement plan. Non-qualified annuities have no lifetime RMDs, and Roth IRA annuities have none while the original owner is alive. Beneficiaries face their own distribution rules after the owner dies.

Does annuitizing my IRA annuity satisfy the RMD?

Generally yes, for that contract, if the payments meet the IRS requirements on timing, frequency and duration. Standard lifetime and period-certain payout options are usually designed to comply. Any IRA money that is not annuitized still needs its own RMD unless an aggregation election applies.

Can I take my total IRA RMD from my annuity instead of my other IRAs?

Yes. IRA RMDs are calculated per account but can be taken from any combination of your traditional IRAs, including an IRA annuity. Check whether the annuity's surrender charge waiver covers withdrawals that exceed that contract's own RMD.

Why is my annuity's RMD value higher than its cash value?

For deferred annuities in IRAs, IRS rules require the actuarial present value of certain additional benefits, such as some death or living benefit guarantees, to be included. The insurer usually calculates this and reports it as the fair market value for RMD purposes.

This article is general education, not personal financial, tax or legal advice. RMD rules and IRS tables change, and annuity contract terms vary, so confirm your own position with your insurer, custodian and a qualified tax professional before making a decision.