Published: March 29, 2021

Updated: December 20, 2025

Rolling Over an IRA or 401(k) into an Annuity

Heading into retirement can be exciting - and daunting. If you’ve saved in a 401(k) or IRA, you can convert part of that balance into guaranteed income by rolling it into an annuity. Below we explain why people do this, how rollovers work, taxes to watch, and share a quick checklist on how to rollover retirement accounts into an annuity.

Why Transfer Money to an Annuity?

An annuity contract is the only product that can create guaranteed income for life. That's the most common reason people choose an annuity vs a 401(k) plan or a self directed annuity.

Consider your retirement goals. If one of your goals is to create an income stream to supplement social security, then an annuity may be a good choice. Most people interested in rolling over their IRA or 401(k) into an annuity are either in retirement or close to it.

Usually, this happens because they want to ensure they won’t outlive their money, and annuities can provide that peace of mind. Others fear the stock market’s risks and want an annuity’s guaranteed income as part of their retirement investment strategy.

How To Choose the Right Plan

First choose when you want income:

• Deferred annuity - grow on a tax-deferred basis now; convert to income later.
• Immediate (income) annuity - start payouts right away for predictable income.

Next choose how you want growth:

• Fixed annuity - guaranteed rate for the term you select (principal protection).
• Fixed-indexed annuity - rate varies with an index within caps and floors.
• Variable annuity - market-exposed subaccounts with higher risk and fees.

Decide whether you want death benefits and name beneficiaries on all retirement accounts and insurance contracts.

How Much Should You Roll Over?

Aim to cover essential expenses with guaranteed income (Social Security, pensions, and annuity payments). Work with a financial professional to size the rollover for your situation. 

How to Get an IRA Annuity (Step-by-Step)

1. Decide on the annuity type (many choose a fixed annuity for guaranteed growth and income). 
2. Open an IRA annuity with the insurer or via your IRA custodian. 
3. Request a trustee-to-trustee transfer (direct rollover) from your IRA/401(k) to avoid withholding and the 60-day rule.
4. Choose payout options later via annuitization, or keep the annuity in accumulation until needed. 
5. Most insurers and custodians can coordinate the paperwork for you.

How to Rollover Your IRA or 401(k) Into an Annuity

The IRS allows qualified-to-qualified transfers among 401(k)s, IRAs, and qualified annuities. A direct rollover (trustee-to-trustee) is usually best because funds never touch your bank account and you avoid withholding.

If you receive the funds first, you generally must deposit them into another qualified account within 60 days to avoid taxes and potential penalties.

After a qualified rollover, you own an IRA annuity held at the insurer. Many plans also allow rolling a former-employer 401(k) directly into an annuity.

Required Minimum Distributions (RMDs): For most savers, RMDs begin at age 73 (scheduled to 75 in 2033). Many annuities permit penalty-free RMD withdrawals even during a surrender period; confirm in the contract.

Tax Implications of an IRA to Annuity Rollover

Moving money from a traditional 401(k) or IRA into a qualified annuity is typically not a taxable event if done via direct transfer; taxes are deferred until distributions.

401(k) or Traditional IRA to Annuity Rollover (Tax Implications)

Use a direct transfer between the plan/IRA and the insurer to avoid withholding and the 60-day deadline. In a fixed annuity, growth is credited at your guaranteed rate; in a variable annuity, it varies with markets. Earnings remain tax-deferred inside the annuity.

Rolling Over a Roth IRA into an Annuity (Tax Implications)

A Roth IRA-to-Roth IRA annuity transfer keeps distributions tax-free when qualified. Keep Roth assets in a Roth account type to preserve tax-free treatment.

Frequently Asked Questions

Can I roll an existing annuity into a Roth IRA?

Not directly in most cases. A 1035 exchange moves one annuity to another annuity, not into an IRA. If your annuity is held inside a traditional IRA, you can convert that IRA annuity to a Roth IRA via a taxable Roth conversion. Always consult a tax professional.

How long does an IRA rollover to an annuity take?

Direct transfers typically complete in a few business days to a few weeks depending on custodians and paperwork.

The Bottom Line with IRA Rollovers to an Annuity

Key takeaways when considering a transfer of IRA money to an annuity:

• Meet with an agent or financial advisor to discuss your current financial situation.
• Ensure that you roll over the money via a direct transfer, so the money never enters your bank account. This will help you avoid paying ordinary income taxes on the transfer.
• If you use a Roth IRA to fund a Roth IRA annuity, qualified withdrawals are tax-free. 

If you’re ready to purchase your fixed annuity, check out Canvas’ products.

Citations

1. Zacks.com (Haring 2020) -- When You Roll Over an IRA or Annuity Do You Pay Taxes?

2. Zacks.com (Rodeck 2020) -- Tax Implications for When IRA Is Converted to an Annuity?

3. Smart Asset (Lake 2020) -- Converting an IRA to an Annuity? Read This First