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Can You Take Your IRA Required Minimum Distribution (RMD) from an Annuity?

Carl Ostenson

Here’s a question I have been getting more and more lately. With the bulk of Americans retirement money in qualified plans such as 401ks and IRAs, it makes sense.

So let’s go through this bit-by-bit and give you some examples:

When you turn 70 ½ Uncle Sam and his buddy the IRS will force you to start taking money out of your IRA or 401k regardless if you want to or not. It’s called the Required Minimum Distribution.

You can read a table for calculating your Required Distribution here.

As a rule of thumb, at 70 ½, it starts right around 3.65% of your IRA account value on December 31st of the year prior to the distribution. The percentage amount goes up as you get older. At age 80 the percentage is about 5.35%. (All based on current IRS tables.) You have been getting tax advantages on your money for the past 20-30 years, and now the government wants some taxes. You MUST take out the required amount every year after you turn 70 ½ or there is a very big penalty. How does this work if I put my IRA / 401k into an annuity?

It depends on the annuity.

Many of them specifically say “RMD friendly”. That means that as long as you are not exceeding your RMD you can take it out every year without penalty, even if the RMD amount exceeds the withdrawal limits set forth in the contract.  Many annuities have 10% free withdrawal features and they are also RMD friendly meaning that if your RMD ever exceeds the 10% free withdrawal provision, you can still take the RMD without any penalties. This is a good thing.

So let’s look at some different types of annuities and how the Required Minimum Distribution would work: 

Hybrid Annuity (Indexed Annuity with Income Rider): There are a couple different things going on here. So try to follow me.

During the “Roll-up Period” you are letting your income account grow. The longer you let it “Roll Up” the higher your eventual Guaranteed Income will be. If you start your guaranteed income withdrawals BEFORE the age of 70 ½ then the amount of your withdrawal should satisfy your RMD.

EXAMPLE: Let’s say your Guaranteed Withdrawal is $5,500 per year for life. You calculate your RMD to be $3,650. You are good to go that year. The $5,500 is more than your RMD of $3,650, so nothing to worry about.

As you get older, your RMD percentage goes up every year. As long as the amount you are taking out satisfies the RMD amount, then you are fine. You do not have to take out your income plus the RMD.

IMPORTANT: If you don’t plan on starting the income rider payments until after the age of 70 ½ then there may be a few years that you will need to take out your RMD even though you have not started your guaranteed withdrawal payments. In this case, you will need to take out your RMD as a withdrawal. You don’t have to enact the guaranteed income rider payments, but you do need to take the RMD no matter what.

Another option would be to take the RMD from a different IRA account. As long as the total RMD is correct, based on the total amount of IRA/401 money, the IRS does not care if you take it all from one account, or take the RMD from multiple accounts. Just as long as the total is correct.

Depending on the Hybrid Annuity, the Income Account may or may not continue to roll up when you take out your withdrawal for your RMD.

CD -like Fixed Annuities (Also called MYGAs or Fixed Rate Annuities):

This totally depends on the contract.

There are CD-Like Fixed Annuities with zero liquidity, and if you take your RMD you will have to pay a penalty. I’d avoid these if you are using IRA money. There are other contracts that allow you to withdraw only your interest, BUT if the RMD is more than the interest then they will let you take out the RMD. This is a good thing.Then there are Fixed Annuities with 10% liquidity and RMD friendly. With these you have nothing to worry about. There’s plenty of liquidity to take your RMD. Compare that to a bank CD where you may not be able to take your RMD at all without having to forfeit some interest.

Just be sure to ask your advisor or agent if the annuity is “RMD friendly.”

Indexed Annuities: 

These would work similar to a CD-Like Fixed Annuity.

Let’s assume you put some IRA money in an indexed annuity just to keep it safe, diversify and get some growth potential. Once you reach 70 ½ you must start taking out your RMD whether you want to or not. In most cases, the custodian company will send you letter reminding you about this. They will give you plenty of time and will also help you calculate your RMD. There is usually a piece of paper that you need to sign and submit it to the insurance company for them to process your RMD.

This goes with any of the annuities mentioned.

Immediate annuity: 

This one is complicated and I will refer you to a tax professional if you are looking for answers on whether or not the immediate annuity you purchase will satisfy your RMD.

SUMMARY: In most cases, you are fine using IRA or 401k money to fund an annuity and you will be able to take your Required Minimum Distribution without any problems. BUT, make sure you ask the agent or advisor if the annuity is RMD friendly before you transfer any money there. One simple question could save you problems down the road.

Hope this was helpful.

DISCLAIMER: I am not an accountant, lawyer, or tax professional. This article is for educational purposes only. Please consult with the proper professionals to make sure you are doing things correctly.

Click here (Carl Ostenson) to see more of this author’s articles.

About the Author:

Carl Ostenson specializes in helping his clients use their IRA or 401k to set up their Retirement Income Plan for when they retire. He works with clients in the Chicagoland area and surrounding suburbs.

If you live in Chicagoland and want to talk about annuities with a local guy, give Carl a call at 847-376-8400… there’s never any pressure. To get more about Carl, visit:

Be sure to check out his Free IRA Guide titled “How to Get Secure and Predictable Income From Your IRA/401k When You Retire.”


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  • John Olsen says:

    The following may be of help to those looking for the rules dealing with RMDs and annuities:

    How is the Required Minimum Distribution for an immediate annuity owned inside a Traditional IRA determined? Can the annuity income be applied to the RMD for the rest of that taxpayer’s Traditional IRAs for that year?

    Natalie Choate deals with these questions in the sixth edition (2006) of her exceptional book “Life and Death Planning for Retirement Benefits”. The following italicized material is taken from Sect. 10.2.10 of that edition. It is not contained in the seventh edition (2011), but is available in a special report, “When Insurance Products Meet Retirement Plans” available for download at

    Reg. §1.401(a)(9)-6 applies to defined-benefit plans. It also applies to "annuity contracts purchased with an employee's account balance under a defined contribution plan." TD 9130 2004 –1 CB 1082. Thus, if a retiring employees 401(k) balance is used directly to purchase an annuity contract, the annuity contract must comply with the DB plan rules, even though a 401(k) plan is a DC plan. The same is true if the employee rolls his 401(k) plan balance over to an IRA (another form of DC plan), and uses part or all of the IRA funds to purchase an annuity contract. Reg. §1.401(a)(9)-5, A-2(e), second sentence. In the year of the purchase, the account is still subject to the DC plan MRD rules; for that year only, distributions under the annuity contract will be taken into account as satisfying the MRD requirement for the account under the DC rules. Reg. §1.401(a)(9)-5, A-2(e), third sentence…

    If only part of the employee’s benefit in a DC plan is used to purchase an annuity, the regulations treat the two portions of the employee's account as two separate accounts, beginning the year after the year of the purchase. The annuity contract must comply with Reg. §1.401(a)(9)-6 (the DB plan rules) and the rest of the account must comply with the DC plan MRD rules (Reg. §1.401(a)(9)-5). See Reg. §1.401(a)(9)-8, A-2 (a)(3).

    What does this mean in practice? The rules for the year in which the IRA purchases the immediate annuity are different from the rules to be followed in subsequent years. In the year of purchase, the 12/31/prior year balance is used to determine the MRD (Choate uses MRD, for “Minimum Required Distribution”; most other commentators use RMD for “Required Minimum Distribution”. They’re the same thing). So, in that year of immediate annuity purchase, the RMD for all the taxpayer’s Traditional IRAs is the 12/31/prior year balance divided by the divisor found from the applicable table – either the “Unified Table” or the special table used when the beneficiary is a spouse more than 10 years younger than the IRA participant). The annuity income from the IRA immediate annuity becomes part of that aggregate RMD and any remaining RMD must be taken from the rest of the taxpayer’s Traditional IRAs.

    For years following the IRA’s purchase of the immediate annuity, the IRA will be treated as two separate accounts for RMD purposes (Reg. §1.401(a)(9)-8, A-2(a)(3)). The annuity income will qualify as RMD for that annuity and the RMD for the non-annuity assets of that taxpayer’s Traditional IRAs will be calculated using the 12/31/Prior Year / Table Divisor method. Note that this treatment refers only to when an IRA purchases an immediate annuity or a deferred annuity that is annuitized in the first year. A deferred annuity not yet annuitized held in an IRA is treated like any other IRA asset for RMD purposes.

  • stephen koch says:

    Is the RMD calculated from the account balance for the fixed and indexed combined value(cash value) , or is it based on the Guaranteed Lifetime Balance value that is used to determine the GLWB. And if he RMD is less than the guaranteed bump up value, is the difference added to the GLWB balance , in most hybrid Annuities. This would allow this value to continue to grow so as to increase the amount that the GLWB would be based on

  • Thomas Cronin says:

    In 2016 I purchased a fixed rate annuity in the amount of $200,000 within my IRA, leaving me approximately 60,000 in same IRA. Tax year 2016 accounted for concerning RMD. In 2017 I will 170000 income from annuity. My statement from remaining 60000 in same IRA states that I must Withdraw about 2700 out of this 60000 to satisfy RMD. Does income from my annuity cover the 2700?

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