Elaine Silvestrini, Annuity.org Writer
  • Written By
    Elaine Silvestrini

    Elaine Silvestrini

    Financial Writer

    Elaine Silvestrini is an advocate for financial literacy who worked for more than 25 years in journalism before joining Annuity.org as a financial writer.

    Read More
  • Edited By
    Kim Borwick
    Kim Borwick, Financial Editor for Annuity.org

    Kim Borwick

    Financial Editor

    Kim Borwick is a writer and editor who studies financial literacy and retirement annuities. She has extensive experience with editing educational content and financial topics for Annuity.org.

    Read More
  • Financially Reviewed By
    George F. Shave III, RICP®
    George Shave, RICP

    George F. Shave III, RICP®

    Retirement Income Certified Professional™ at SFG Annuity Advisors

    George F. Shave III, RICP®, is a principal and founder of SFG Annuity Advisors, a firm founded in 1997 to help consumers and advisors navigate the complex world of annuities. George has served a more than 30-year tenure in the financial services industry.

    Read More
  • Updated: December 22, 2022
  • 15 min read time
  • This page features 19 Cited Research Articles
Fact Checked
Fact Checked

Annuity.org partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

Cite Us
How to Cite Annuity.org's Article

APA Silvestrini, E. (2022, December 22). Rules for Rolling Your IRA or 401(k) Into an Annuity. Annuity.org. Retrieved February 2, 2023, from https://www.annuity.org/retirement/401k-ira-annuity-rollover/

MLA Silvestrini, Elaine. "Rules for Rolling Your IRA or 401(k) Into an Annuity." Annuity.org, 22 Dec 2022, https://www.annuity.org/retirement/401k-ira-annuity-rollover/.

Chicago Silvestrini, Elaine. "Rules for Rolling Your IRA or 401(k) Into an Annuity." Annuity.org. Last modified December 22, 2022. https://www.annuity.org/retirement/401k-ira-annuity-rollover/.

Why Trust Annuity.org
Why You Can Trust Annuity.org
Annuity.org has provided reliable, accurate financial information to consumers since 2013. We adhere to ethical journalism practices, including presenting honest, unbiased information that follows Associated Press style guidelines and reporting facts from reliable, attributed sources. Our objective is to deliver the most comprehensive explanation of annuities and financial literacy topics using plain, straightforward language.

Our Partnerships, Vision and Goals

We pride ourselves on partnering with professionals like those from Senior Market Sales (SMS) — a market leader with over 30 years of experience in the insurance industry — who offer personalized retirement solutions for consumers across the country. Our relationships with partners including SMS and Insuractive, the company’s consumer-facing branch, allow us to facilitate the sale of annuities and other retirement-oriented financial products to consumers who are looking to purchase safe and reliable solutions to fill gaps in their retirement income. We are compensated when we produce legitimate inquiries, and that compensation helps make Annuity.org an even stronger resource for our audience. We may also, at times, sell lead data to partners in our network in order to best connect consumers to the information they request. Readers are in no way obligated to use our partners’ services to access the free resources on Annuity.org.

Annuity.org carefully selects partners who share a common goal of educating consumers and helping them select the most appropriate product for their unique financial and lifestyle goals. Our network of advisors will never recommend products that are not right for the consumer, nor will Annuity.org. Additionally, Annuity.org operates independently of its partners and has complete editorial control over the information we publish.

Our vision is to provide users with the highest quality information possible about their financial options and empower them to make informed decisions based on their unique needs.

How Does an IRA or 401(k) Into an Annuity Rollover Work

Say you’re interested in using your retirement funds to buy an annuity. Should you withdraw the funds from your retirement account, pay the taxes and then buy the annuity? Or can you just roll over the funds directly into the annuity, continuing to avoid taxes until you receive the income stream payments?

In most cases, the IRS allows qualified funds to be transferred into, or out of, qualified annuities. So, it’s important to know the annuity rollover rules before making this decision.
In short, there are two ways to roll over your retirement account into an annuity — directly through a transfer, or indirectly through taking a qualifying withdrawal.

IRA or a 401(k) Annuity Rollover Infographic
annuities explained cta
Get Your Free Guide to Annuities
Learn from the experts and get our 101-level guide, Annuities Explained, delivered to your inbox for free.

Rolling over some of your retirement savings into an annuity which will eventually provide guaranteed, secure lifetime income can be the answer to a lot of questions and concerns you have about supporting yourself after you’ve retired.

With the demise of pensions for most workers, many have found themselves on their own to chart out their retirement finances. The big question they face is: How do they do it?

Imagine you’ve built up a sizable retirement savings in your employer-sponsored retirement plan or your own IRA account, and you’re getting ready to retire. But without a pension, how do you make sure you have continuous income to fund your retirement years? Social Security won’t cut it. It’s too little, and who knows how long it will be there?

How do you use your savings to fund your retirement? How much can you withdraw at a time? How do you know how long you’ll need the money to last? What if you run out of money? What if you spend too little because you’re afraid of running out of money? In other words, how can you make the funds in your 401(k) or IRA more like a pension?

One popular option is to use a portion of the funds to purchase an annuity, which will provide you a stream of income like a pension.

The income can be structured to last the rest of your lifetime, or, if you are married, for two lifetimes. And if you don’t want lifetime income, you can create an income that lasts for a set period of time — 15 years, for example.

Your financial advisor can help you build a plan that is right for you.

Wendy Swanson, Retirement Income Certified Professional™, explains how you can roll over your 401(k) or IRA into an annuity.

How Do 401(k)s and IRAs Work?

A 401(k) is an employer-sponsored retirement savings plan that allows employees to save pre-tax money from their paychecks, often with a partial match from their employers. Money deposited into 401(k) accounts is not taxed until it is withdrawn. It gets its name from the section of the tax code that covers it.

By and large 401(k) plans, known as defined contribution plans, have taken the place of pensions, known as defined benefit plans. 401(k)s are the primary vehicle of employer-sponsored retirement savings.

An IRA is an individual retirement account in which the saver directly deposits pre-tax funds. Often, individuals who leave companies where they had 401(k) plans will roll the funds into IRAs.

Regardless of whether you own a 401k or an IRA, once a distribution is taken, it is taxable as ordinary income. Additionally, if you are withdrawing money prior to the age of 59 and a half, then the IRS levies an additional 10% penalty tax. The same rules of taxation apply when you roll a 401(k) plan or an IRA into an annuity.

IRA vs. Roth IRA graphic
Graphic explaining the difference between a standard IRA and a Roth IRA
Will You Have Enough Income in Retirement?
Your retirement income gap is:

An annuity may be the perfect solution for you to bridge your retirement income gap. And because annuities are customizable, you can structure yours to meet your unique financial needs.

Get a free Quote

Best Practices and Strategies for Rolling Existing Retirement Funds Into an Annuity

Determining how much of your retirement savings should be in an annuity should start with an analysis of your routine expenses. Ideally, you should make sure you have a guaranteed income stream to fund at least 80% of your budget. This income stream can come from Social Security, a pension or annuities.

When you consider rolling your retirement savings into an annuity, you should be familiar with the types of annuities and the benefits and drawbacks of each. Some investment advisors say that variable annuities are not a good option because they can be expensive, complicated and unpredictable. Fixed annuities, however, are less costly to the purchaser and more reliable as far as an income stream.

You should consult a financial advisor to chart out your budget moving forward and determine how much of your retirement savings should be used to purchase an annuity. You should determine what type of annuity works best for you and whether you should purchase specific riders to modify the contract to meet your needs.

You could also use various strategies, such as annuity laddering, which takes advantage of different types of annuities to construct the income stream you need, or a split-funded annuity, which enables you to get the best of different types of annuities.

Another possible strategy is to delay receiving the annuity income stream as long as possible. That’s because your expected lifespan is part of the calculation an annuity provider uses to determine how big your payments will be. The shorter your life is projected to last, the higher the individual payments. Consequently, the older you are when you begin receiving payments, the higher the income payments will be.

What Are the Tax Rules and Implications for Rolling Over an IRA or 401(k) Into an Annuity?

Annuity rollover rules for retirement savings accounts can cause serious tax implications depending on the type of account.

The rules and implications can vary based on whether you’re rolling over money from a 401(k) plan, traditional IRA or Roth IRA. But for most retirement plans, the rules are straightforward.


Traditional IRA or 401(k)

Traditional IRAs and traditional 401(k) plans are deferred tax retirement accounts. That means you don’t pay income taxes on the money you contribute to the plans — but you pay taxes on the money you take out of them when you retire.

There typically are no tax implications for moving money from your traditional IRA or 401(k) plan into an annuity. The easiest way to do this is to make a direct rollover through the insurance company handling the annuity.

The money you roll over goes directly from your retirement plan into the annuity and you pay income taxes on the money you receive when you retire.

Roth IRA and Roth 401(k)

Roth IRAs and Roth 401(k) plans are after-tax retirement savings accounts. That means, you’ve already paid taxes on your contributions.

So, you don’t have to pay income taxes on the money you take out of a Roth IRA and roll over into an annuity. The same goes for a Roth 401(k).

Once you enter retirement, you can roll any Roth accounts into a Roth IRA annuity.

Direct and Indirect Rollovers

Annuity rollover rules are also affected based on whether you do a direct rollover or an indirect rollover.

Direct rollovers occur when you transfer your retirement account funds — within annuity rollover rules — directly into an annuity. Under these circumstances, direct transfers are tax free. Direct transfers are commonly done by mailing or wiring funds directly to the new plan provider, but on some occasions, the old plan provider may mail the check directly to you, payable to the new plan provider. This still counts as a tax-free direct transfer.

Indirect rollovers, however, are more complicated and have significant tax consequences if not executed correctly. Indirect rollovers involve withdrawing your funds from a retirement account — typically when you change jobs or other reason allowed under the tax laws prior to retirement. To remain tax-free, the funds must be rolled over within 60 days of distribution. Otherwise, the distribution is income taxable and may also be subject to the penalty for withdrawing funds prior to age 59 and a half.

Indirect rollovers have other consequences as well. Distributions made from qualified retirement plans, such as 403(b) annuities and 457 plans, are subject to automatic withholding tax in the amount of 20%. Internal Revenue Code considers the withholding of a distribution unless it is added to the 80% received and reallocated during the 60-day limit.

The advice here is simple: whenever possible use direct transfers.

Does It Make Sense to Roll Your IRA or 401(k) Into an Annuity?

There are two main situations in which it makes the most sense to consider rolling over your 401(k) or IRA into an annuity:

  • You are nearing retirement age with a sizable retirement savings account.
  • You are worried about outliving your retirement savings.

Most people who consider a retirement account rollover into an annuity are nearing retirement age and may be considering one or both options.

People near retirement may have saved up a sizable nest egg in a 401(k) or IRA. That gives you some options.

You may want to diversify your retirement funds by rolling over some of the money you’ve saved into an annuity — giving you both savings and a steady stream of income.

If you are worried about outliving your savings, rolling savings into a guaranteed lifetime income makes a rollover an option worth considering.

Rolling Your Annuity Into a 401(k)

Can you roll your annuity over into your 401(k)? It depends.

First, your annuity would need to already be an IRA annuity. Second, your 401(k) plan would have to allow you to roll money from other tax-deferred retirement plans into it.

You can run into tax implications when rolling an annuity into a traditional 401(k). That’s because traditional 401(k) contributions are tax deductible but annuity contributions outside of a retirement account are not.

The IRS will not allow you to mix and match deductible and nondeductible contributions into the same account.

One solution may be to carry out a tax-free exchange of one annuity with another annuity. This is permitted under Section 1035 of the tax code.

The exchange will prevent you from having to pay income taxes or capital gains taxes on the exchange. But be aware of possible surrender charges that you may have to pay.

You should check with the person in charge of your employer’s plan. You should also check with your annuity provider and review the contract to make sure you’re able to take the funds from the annuity.

Frequently Asked Questions About Annuity Rollovers

Can I roll existing retirement funds into an annuity?
You can roll retirement savings like 401(k) plans, 403(b) plans, IRAs and lump sum pension plans into an annuity to create a type of qualified annuity called an IRA annuity. You can complete the rollover through an insurance company, by depositing your retirement funds directly into the new annuity or by requesting your previous employer to roll over your 401(k) into the IRA annuity. You typically have 60 days to complete a rollover before facing steep fines.
Can I roll an IRA or 401(k) into an annuity tax free?
There are two ways to roll over your retirement savings to an annuity: through a direct rollover or an indirect rollover. Direct rollovers occur when you transfer your retirement account funds — within annuity rollover rules — directly into an annuity. Under these circumstances, direct transfers are tax free.

There typically are no tax implications for directly rolling over funds from your traditional IRA or 401(k) plan into an annuity as long as you complete the process within 60 days of the withdrawal.

Indirect rollovers, however, involve withdrawing your funds from a retirement account and depositing them with a bank, and then transferring the funds from the bank into an annuity. Indirect rollovers are more complicated and can have significant tax consequences if not executed properly.

Because there are different rules and tax implications for different rollover scenarios, ‌it’s wise to talk with a tax professional about your specific case.

How much of the money should I roll over into an annuity?
The amount of money you should roll over into an annuity depends ‌on your specific needs and goals. You want the amount to be enough to generate a lifetime income sufficient to cover your daily expenses. You should also factor in inflation and how much of your expenses are covered by other retirement income sources you receive, such as Social Security or pension payments.

A financial advisor can help determine which type of annuity is best suited for you and whether you should purchase any specific riders to modify the contract to meet your needs.


Connect With a Financial Advisor Instantly

Our free tool can help you find an advisor who serves your needs. Get matched with a financial advisor who fits your unique criteria. Once you’ve been matched, consult for free with no obligation.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: December 22, 2022

19 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Boyte-White, C. (2019, March 11). What are the risks of rolling my 401(k) into an annuity? Retrieved from https://www.investopedia.com/ask/answers/093015/what-are-risks-rolling-my-401k-annuity.asp
  2. Brooks, R. (2018, April 13). How to Turn Your 401(k) or IRA Into Retirement Income. Retrieved from https://money.usnews.com/money/retirement/articles/2018-04-13/how-to-turn-your-401-k-or-ira-into-retirement-income
  3. Cowels, T. (n.d.). Should I Roll My 401(k) Into an Annuity? Retrieved from https://money.com/collection-post/should-i-roll-my-401k-into-an-annuity/
  4. Decker, F. (n.d.). Can You Roll Over a 401(k) Into an Immediate Income Annuity? Retrieved from https://budgeting.thenest.com/can-roll-over-401k-immediate-income-annuity-31509.html
  5. Dias, C. (2018, March 8). Pension Possibilities: IRA Rollover? Buy an Annuity? Or Take the Payout? Retrieved from https://www.kiplinger.com/article/retirement/t020-c032-s014-how-should-you-take-your-pension-payout.html
  6. Hanson, S. (2014, November 24). New 401(k) annuities can make retirement income a sure thing. Retrieved from http://nbr.com/2014/11/24/new-401k-annuities-can-make-retirement-income-a-sure-thing/
  7. Internal Revenue Service. (2022, July 28). Topic Number 413 – Rollovers from Retirement Plans. Retrieved from https://www.irs.gov/taxtopics/tc413
  8. Internal Revenue Service. (2022, June 16). Rollovers of Retirement Plan and IRA Distributions. Retrieved from https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions
  9. Lake, R. (2018, September 14). Converting An IRA To An Annuity? Read This First. Retrieved from https://smartasset.com/retirement/converting-an-ira-to-an-annuity
  10. Lohrey, J. (n.d.). Can I Roll Over My 401(k) to a Tax-Deferred Annuity? Retrieved from https://finance.zacks.com/can-roll-over-401k-taxdeferred-annuity-9012.html
  11. McClintock, L. (2017, April 19). Can an Annuity Be Rolled Over to a 401(k)? Retrieved from https://pocketsense.com/can-annuity-rolled-over-401k-2581.html
  12. Moisand, D. (2015, January 19). Better to roll 401(k) money into a pension than an annuity. Retrieved from https://www.marketwatch.com/story/better-to-roll-401k-money-into-a-pension-than-an-annuity-2015-01-19
  13. Motley Fool. (n.d.). Can an annuity Be Rolled Over to a 401(k)? Retrieved from https://www.fool.com/knowledge-center/can-an-annuity-be-rolled-over-to-a-401k.aspx
  14. Motley Fool. (n.d.). What Are the Tax Implications When an IRA Is Converted to an Annuity? Retrieved from https://www.fool.com/knowledge-center/tax-implications-when-an-ira-is-converted-to-an-an.aspx
  15. Myers, R. (n.d.). Turn Your 401(k) into a Pension Plan. Retrieved from https://www.wsj.com/ad/article/annuities-401k
  16. Rodeck, D. (n.d.). Tax Implications for When IRA Is Converted to an Annuity? Retrieved from https://finance.zacks.com/tax-implications-ira-converted-annuity-2428.html
  17. Sams, M. (n.d.). How to Help a Client Roll Their 401(k) or IRA Into a Fixed Annuity. Retrieved from https://blog.newhorizonsmktg.com/how-to-help-a-client-roll-their-401k-or-ira-into-a-fixed-annuity
  18. Updegrave, W. (2016, February 3). When an annuity makes sense for you. Retrieved from https://money.cnn.com/2016/02/03/retirement/retirement-savings-annuity/
  19. Voigt, K. (2019, April 16). Annuity vs. IRA: Which is Best for My Retirement? Retrieved from https://www.nerdwallet.com/blog/investing/annuity-vs-ira-which-is-best/