Can an Annuity Be Rolled Over to an IRA? Rules and Deadlines

Yes, an annuity can be rolled over to an IRA, but only if it is a qualified annuity. Qualified annuities, funded with pre-tax dollars inside an employer plan such as a 401(k), 403(b), or governmental 457(b), can move into a traditional IRA without triggering income tax as long as the transfer follows IRS rules. Non-qualified annuities, purchased on your own with after-tax money, cannot be rolled into an IRA at all.¹

Which Annuities Qualify

The IRS treats annuity contracts based on how they were funded. A qualified annuity sits inside a tax-advantaged retirement plan. Because the money went in before taxes, a distribution receives the same rollover treatment as any other distribution from a qualified plan: you can move the taxable portion into a traditional IRA, a SEP IRA, or another eligible retirement plan and defer tax until you withdraw the funds later.² The federal statute governing these transfers keeps the rollover tax-free as long as the funds reach the new account within the required timeframe.³

A non-qualified annuity is a commercial insurance contract you bought yourself with money that had already been taxed. It was never part of an employer retirement plan, so it does not meet the requirements for an IRA rollover. Trying to move non-qualified annuity money into an IRA would violate annual contribution limits and create excess-contribution penalties.¹

If Your Annuity Is Non-Qualified

You have options, just not an IRA. A Section 1035 exchange lets you swap one non-qualified annuity for another, or for a qualified long-term care insurance contract, without recognizing any gain. The exchange must be direct. If you cash out first and then buy a new contract, the tax deferral is lost.⁴

Withdrawals from a non-qualified annuity are also taxed on an earnings-first basis. The IRS treats the first dollars out as taxable gains; only after all earnings have been distributed do you reach your original after-tax contributions.² A full surrender means income tax on every dollar of earnings in the contract.

Traditional IRA or Roth IRA

A qualified annuity can go into a traditional IRA with no immediate tax, or into a Roth IRA as a conversion. The Roth path includes the entire taxable portion of the distribution in your gross income for the year. There is no income limit for the conversion itself. The distributing plan reports it on Form 1099-R using Code G and shows the taxable amount.⁵

A Roth conversion tends to work best when you expect a higher tax bracket in retirement or want to eliminate future required minimum distributions on that money. You need cash outside the rollover to cover the tax bill. Paying the tax from the converted funds reduces the long-term benefit and, if you are under 59½, the amount used to pay tax can itself trigger the early-withdrawal penalty.

Direct Rollover vs. Indirect Rollover

How the money moves determines whether the rollover stays clean.

Direct Rollover

In a direct (trustee-to-trustee) rollover, the annuity provider sends the funds straight to your new IRA custodian. You never touch the money. This method avoids mandatory tax withholding, sidesteps the 60-day deadline, and is not subject to the one-per-year rollover limit.¹ The insurance company liquidates the annuity and wires the proceeds, or mails a check payable to the new custodian rather than to you.

Indirect Rollover

In an indirect rollover, the annuity provider pays the distribution to you. You then have 60 days from the date you receive it to deposit the full amount into an IRA or another eligible plan. Miss the window and the entire distribution counts as taxable income, plus a 10 percent early-withdrawal penalty if you are under 59½.⁶

There is a further trap. When an employer-sponsored plan pays a taxable distribution directly to you, the plan must withhold 20 percent for federal income tax, even if you plan to roll the entire amount over. To complete a full rollover you have to replace that withheld 20 percent from your own pocket within 60 days. The withheld amount comes back as a refund when you file, but you need the cash up front.⁷

The 60-Day Deadline

The 60-day clock starts on the day you receive the distribution, not the day the insurance company mails it. Any portion you fail to deposit within 60 days becomes taxable income and may trigger the 10 percent early-withdrawal penalty.¹

If you miss the deadline for reasons beyond your control, you can self-certify for a waiver. Qualifying reasons include a financial institution error, a serious illness or death in the family, a misplaced check, severe damage to your home, or postal delays. You must make the rollover contribution as soon as the reason for the delay no longer applies, generally within 30 days, and keep a signed copy of the self-certification letter with your records.⁸

The One-Per-Year Rollover Limit

The IRS limits you to one indirect IRA-to-IRA rollover in any 12-month period, and this cap applies across all your IRAs combined. Traditional, Roth, SEP, and SIMPLE are treated as a single IRA for this purpose. Violate the rule and the second rollover is treated as a taxable distribution, may trigger the 10 percent early-withdrawal penalty, and the deposited funds become an excess contribution subject to a 6 percent annual tax for as long as they stay in the IRA.¹

Direct rollovers, plan-to-IRA rollovers, IRA-to-plan rollovers, and Roth conversions do not count toward the cap. It is one more reason to use a direct rollover whenever the option is available.

Take Your RMD Before Rolling Over

If you have reached the age when required minimum distributions apply, take your current-year RMD before rolling over any remaining balance. The IRS specifically excludes RMDs from eligible rollover distributions.¹

Under current law, RMDs generally must begin by April 1 of the year after you turn 73, with a December 31 deadline for each year after that.⁹ If the qualified annuity is part of an employer plan and you are still working for that employer, the plan may allow you to delay RMDs until you actually retire. Confirm with the plan administrator whether you owe an RMD for the year before you start the paperwork.

Check for Surrender Charges First

Before initiating a rollover, look at whether your annuity still carries a surrender charge. Most annuities impose declining surrender fees during the first several years of the contract. For variable annuities, the surrender period typically lasts six to ten years, with the fee dropping annually until it reaches zero.¹⁰ Charges can run from roughly 5 to 25 percent of the withdrawn amount in the earliest years. Many contracts let you withdraw up to 10 percent of the account value each year without a surrender fee, so a partial rollover may keep the charge low or eliminate it.

Some fixed and indexed annuities include a market value adjustment. If interest rates have risen since your purchase, the adjustment can cut your payout; if rates have fallen, it may increase it. Review the MVA provision in your contract before requesting a full surrender.

Paperwork and Processing

Before contacting the annuity provider, gather your annuity contract number, the insurance carrier’s name and address, and the receiving IRA custodian’s legal name, mailing address, and account number. If funds will be sent by wire, get the custodian’s wire instructions in advance.

The annuity provider will require a surrender or withdrawal request form authorizing release of the funds. Your IRA custodian may need to provide a rollover acceptance letter confirming the account is an eligible retirement plan. On the forms, specify whether you want a full surrender or a partial rollover of a specific dollar amount, and mark the request as a direct rollover to avoid withholding. Mismatched names or account numbers between the two institutions are the most common cause of processing delays.

Insurance companies generally take ten to fourteen business days to process a surrender and liquidate the annuity. Some contracts or providers may take longer, particularly if the annuity holds illiquid investments or requires additional verification. Once the funds arrive, confirm the amount matches what was sent.

Both institutions file tax forms with the IRS the following year. The annuity provider issues Form 1099-R, reporting the total distribution in Box 1 and the taxable amount in Box 2a. For a direct rollover, Box 2a shows zero and Box 7 contains Code G, signaling that the money moved directly to another retirement account.¹¹ The receiving IRA custodian files Form 5498, reporting the rollover contribution in Box 2 and the account’s fair market value at year-end in Box 5.¹² Keep both forms with your tax records. If the 1099-R does not show Code G or incorrectly reports a taxable amount, contact the annuity provider for a corrected form before filing your return.

Inherited Annuities

Your options depend on whether you inherited the annuity from a spouse or someone else.

A surviving spouse who inherits a qualified annuity can roll the funds into their own IRA and treat the account as if it had always been theirs. Normal RMD rules then apply based on the spouse’s own age, and the spouse is not subject to the 10-year distribution rule.¹³

A non-spouse beneficiary generally cannot roll an inherited qualified annuity into their own IRA. Distributions instead follow the rules for the beneficiary’s category:

An eligible designated beneficiary — a minor child of the deceased, a disabled or chronically ill individual, or someone no more than 10 years younger than the original owner — may take distributions over the longer of their own life expectancy or the owner’s remaining life expectancy.
Most other individual beneficiaries must empty the account by the end of the 10th year after the year of death. If the original owner had already begun RMDs, annual distributions are also required during that 10-year window.
An estate, charity, or other non-individual beneficiary follows different schedules based on whether the owner died before or after their required beginning date.

These rules apply to accounts inherited after 2019. For deaths before 2020, the prior stretch distribution rules may still apply.¹³

1
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
2
Internal Revenue Service. Publication 575 (2025), Pension and Annuity Income
3
Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust
4
Office of the Law Revision Counsel. 26 USC 1035 – Certain Exchanges of Insurance Policies
5
Internal Revenue Service. 2025 Instructions for Forms 1099-R and 5498
6
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
7
Internal Revenue Service. Topic No. 413, Rollovers from Retirement Plans
8
Internal Revenue Service. Revenue Procedure 2016-47
9
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
10
Investor.gov. Surrender Charge
11
Internal Revenue Service. Form 1099-R 2025 Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, Etc.
12
Internal Revenue Service. Form 5498 – IRA Contribution Information
13
Internal Revenue Service. Retirement Topics – Beneficiary