How an IRA Can Be Used to Purchase an Annuity

An IRA already provides tax-deferred growth, making it a common vehicle for retirement savings. Using part of an IRA to purchase an annuity doesn’t add new tax benefits, but it can change how and when your money is used in retirement.

Instead of relying solely on market-based withdrawals, some retirees choose to allocate a portion of their IRA to an annuity designed to provide steady, predictable income, often for life. Depending on the structure, income can begin right away or at a future date.

When IRA funds are used to purchase a qualified annuity, the money typically remains tax-deferred, and payments are taxed as ordinary income when received—similar to other IRA withdrawals. Many retirees use only part of their IRA, allowing them to balance guaranteed income with ongoing investment flexibility.

Two Common Ways to Use IRA Funds

The way IRA funds are used to purchase an annuity matters just as much as the product itself. Understanding these two approaches can help you avoid unnecessary taxes and make a more informed decision.

OptionBest forWhat happensBiggest “watch out”
Direct IRA transfer (recommended)Most retireesIRA custodian sends funds directly to annuity providerMust remain within qualified accounts
Distribution then purchaseLimited casesYou withdraw IRA funds, then buy an annuityTriggers immediate taxation
Required Minimum Distributions (RMDs), if applicable, generally must be taken before using remaining IRA funds to purchase an annuity.

Our Three-Step Process

The number 1 icon

Understand Your IRA

We review your age, IRA type, and whether income, stability, or legacy planning is the priority.

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Compare Annuity Structures

Fixed, indexed, immediate, or deferred—each works differently and will depend on needs.

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Review Income Scenarios

If appropriate, you’ll see estimated income ranges and trade-offs before deciding.

Annuity.org: A Resource You Can Rely On

We help retirement savers understand IRA rules, compare annuity structures, and avoid costly mistakes—so you can decide with confidence. Our approach focuses on education, clarity, and helping you understand your options before making any decisions.

Wendy Swanson, RICP®, CLTC®, NSSA® | 0:35 Can You Roll Over Your 401(K) or IRA Into an Annuity?
Can You Roll Over Your 401(K) or IRA Into an Annuity? - Featuring Wendy Swanson, RICP®, CLTC®, NSSA®
Wendy Swanson, Retirement Income Certified Professional™, explains how you can roll over your 401(k) or IRA into an annuity.
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