Annuities are subject to required minimum distributions only when they sit inside a tax-deferred retirement account such as a traditional IRA, 401(k), or 403(b). An annuity you bought directly from an insurance company with money you had already paid income tax on has no age-based RMD at all. The tax wrapper around the contract is what triggers the rule, not the contract itself.
Qualified Annuities: RMDs Apply
A qualified annuity lives inside a tax-advantaged retirement vehicle. Contributions generally went in pre-tax, earnings grew tax-deferred, and the IRS eventually wants its share. The required minimum distribution is that reckoning.
The value of the annuity counts toward your total account balance for RMD purposes. The IRS looks at your combined balance on December 31 of the prior year and divides it by a life expectancy factor from its Uniform Lifetime Table. The result is what you must withdraw by December 31 of the current year.1Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
A different table applies in one situation: if your sole beneficiary is a spouse more than 10 years younger than you, you use the Joint Life and Last Survivor Expectancy Table, which produces a smaller annual RMD.2Internal Revenue Service. Publication 590-B – Distributions From Individual Retirement Arrangements (IRAs)
For a variable annuity, the fair market value is the current account balance. For a fixed annuity, the insurer reports the contract’s accumulation value or the actuarial present value of future payments, depending on the contract’s status.
When RMDs Start
You generally must take your first RMD for the year you turn 73. You can delay that first distribution until April 1 of the following year, but doing so means two RMDs land in the same calendar year, which can push you into a higher bracket.3Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
Which Account You Pull From
How you satisfy the RMD depends on the account type holding the annuity.
- Traditional IRAs: calculate each IRA’s RMD separately, but withdraw the total from any one of them or split it across several. If one IRA holds an annuity with surrender charges and another holds a brokerage account, the full RMD can come from the brokerage IRA.
- 401(k) plans: each plan’s RMD must be taken from that specific plan. A 401(k) RMD cannot be satisfied from an IRA.
- 403(b) accounts: like IRAs, you can aggregate 403(b) RMDs and take the total from any one 403(b).
You cannot cross account types. An IRA RMD cannot be paid from a 401(k), and vice versa.4Internal Revenue Service. RMD Comparison Chart (IRAs vs. Defined Contribution Plans)
When Annuity Payments Are the RMD
Once a qualified annuity is annuitized, meaning converted from an accumulation account into a stream of periodic payments, those payments can satisfy the RMD automatically without a separate calculation. Treasury regulations require the payments to be made at least annually, to be nonincreasing (with limited exceptions for cost-of-living adjustments and certain other permitted increases), and to be structured for the owner’s life, the joint lives of the owner and a beneficiary, or a period certain not exceeding the applicable life expectancy.5eCFR. 26 CFR 1.401(a)(9)-6 – Required Minimum Distributions for Defined Benefit Plans and Annuity Contracts
If the contract meets those conditions, the insurance company’s payment stream is the RMD. No Uniform Lifetime Table calculation is needed for that contract each year.
Non-Qualified Annuities: No Age-Based RMD
Because you bought a non-qualified annuity with money that was already taxed, the IRS does not force you to start withdrawals at any particular age. There is no 73 trigger. The contract can keep growing tax-deferred for as long as you live if that’s what you want.
Non-qualified annuities have their own rules, but they operate at withdrawal and at death, not on an annual RMD schedule.
How Withdrawals Are Taxed
When you take money out of a non-qualified deferred annuity during the accumulation phase, earnings come out first under a last-in, first-out rule. Every dollar withdrawn is taxable earnings until all the gains have been pulled; only then do withdrawals reach your original principal, which is tax-free.6Internal Revenue Service. Publication 575 (2025), Pension and Annuity Income
Once the contract is annuitized, each payment is split between a taxable earnings portion and a tax-free return of principal using an exclusion ratio the IRS calculates from your investment and the expected payout period.
Withdrawing earnings before age 59½ adds a 10% early withdrawal penalty on the taxable portion.
Death of the Owner
Non-qualified annuities have their own death distribution rules under the tax code, separate from qualified-plan beneficiary rules. If the owner dies before annuity payments have started, the entire value generally must be distributed within five years. A named beneficiary can instead stretch distributions over their own life expectancy if payments begin within one year of the owner’s death.7Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts If the owner dies after payments have begun, the remaining interest must be paid out at least as fast as the method in use at death. A surviving spouse named as beneficiary can step into the owner’s shoes and continue the contract.
Roth Annuities
An annuity held inside a Roth IRA is exempt from RMDs during the owner’s lifetime. The same is now true for designated Roth accounts inside 401(k) and 403(b) plans; the SECURE 2.0 Act eliminated lifetime RMDs for those accounts starting in 2024.3Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Beneficiaries, however, still face distribution rules after the owner dies.
Inherited Annuities
When the owner of a qualified annuity dies, the beneficiary’s options depend on their relationship to the deceased and the year of death. For deaths in 2020 and later, most non-spouse beneficiaries must empty the inherited account by the end of the 10th year after the year of death.8Internal Revenue Service. Retirement Topics – Beneficiary
A narrow group of eligible designated beneficiaries can still use life expectancy instead of the 10-year rule:
- Surviving spouse, who can also roll the account into their own IRA.
- Minor children of the deceased, until they reach the age of majority; the 10-year clock then starts.
- Disabled or chronically ill individuals, for the duration of the disability or illness.
- Beneficiaries not more than 10 years younger than the deceased.
Everyone else, including adult children, friends, and most trusts, falls under the 10-year rule.8Internal Revenue Service. Retirement Topics – Beneficiary Inherited Roth IRAs and Roth 401(k)s follow the same 10-year timeline for non-eligible beneficiaries, but distributions are tax-free once the five-year holding period has been met.
Penalty for a Missed RMD
If you fail to withdraw the full RMD by December 31, the IRS imposes a 25% excise tax on the shortfall. Correct the mistake within two years by taking the missed distribution and the penalty drops to 10%.3Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
The IRS can waive the penalty entirely if the shortfall resulted from reasonable error and you are fixing it. To request a waiver, file Form 5329 with a written explanation of what went wrong and what you did to correct it. Serious illness or an administrative error by a plan custodian tends to get favorable treatment.9Internal Revenue Service. Instructions for Form 5329 (2025) – Waiver of Tax for Reasonable Cause
A surrender charge on the annuity is no defense. The tax code does not care about contract liquidity restrictions.
Surrender Charges and the RMD
Many deferred annuities impose surrender charges during the early years of the contract when withdrawals exceed a set percentage of the account value. This creates real tension with the RMD deadline. Most insurers waive surrender charges on the portion of a withdrawal needed to satisfy an RMD, even if that amount is above the standard free-withdrawal allowance. That is industry practice rather than a regulatory requirement, so read your contract before relying on it.
If you hold multiple IRAs and one contains an annuity still in its surrender period, aggregation is the workaround. Calculate the RMD attributable to the annuity IRA, then take the actual cash from a different IRA that holds more liquid assets. The IRS looks only at whether the combined RMD across your IRAs was withdrawn on time.4Internal Revenue Service. RMD Comparison Chart (IRAs vs. Defined Contribution Plans)