You can move money from an IRA into an annuity without paying taxes, provided the annuity is issued as an individual retirement annuity under Section 408 of the Internal Revenue Code and you use the right transfer method. Rolling an IRA into an annuity works much like moving funds between IRA custodians: the money keeps its tax-deferred status (or tax-free status, for a Roth), and the IRS treats the annuity contract as an IRA going forward. The parts that cost people money are usually not the tax rules themselves but the transfer mechanics, the annuity’s fee structure, and mismatches between the IRA type you’re leaving and the contract type you’re buying.
Match the IRA Type to the Annuity Type
Traditional, Roth, SEP, and SIMPLE IRAs are all eligible. The catch is that the annuity has to be designated the same way. A traditional IRA rolls into a traditional IRA annuity with no tax hit. A Roth IRA must go into a Roth-designated annuity to stay tax-free. Moving a traditional IRA into a Roth annuity is a conversion, and the full amount becomes taxable income in the year of the move.1IRS.gov. Rollover Chart
SIMPLE IRAs carry a separate trap. If you haven’t participated in the SIMPLE plan for at least two years, rolling the balance into a non-SIMPLE IRA triggers a 25% early distribution penalty rather than the usual 10%. The two-year clock starts the day the first contribution hit the account, not the day you opened it.2Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions After two years, the SIMPLE IRA rolls like any other.
What Makes an Annuity a Qualified IRA Annuity
Not every annuity qualifies. Section 408 of the Internal Revenue Code lays out what the contract has to look like, and the insurance company has to write it that way from the start.3Office of the Law Revision Counsel. 26 USC 408 Individual Retirement Accounts The contract must be non-transferable, so you can’t sell or assign it. It cannot lock you into fixed premium payments. New contributions (as opposed to rollover deposits) cannot exceed the annual IRA limit, which is $7,500 for 2026, or $8,600 if you are 50 or older; rollover amounts are exempt from that cap.4Internal Revenue Service. Retirement Topics – IRA Contribution Limits The contract can carry an incidental death benefit but cannot function primarily as life insurance. And it has to follow the same required minimum distribution rules as any IRA.
Fixed, variable, and indexed annuities all work, so long as the issuer sells them in an IRA-designated form. Most large insurers offer contracts specifically labeled for rollovers.
Direct Transfer or 60-Day Rollover
This is where the real risk lives. There are two ways to move the money.
Trustee-to-Trustee Transfer
Your current IRA custodian sends the funds straight to the insurance company. The money never touches your hands. Three advantages follow from that: no tax withholding, no 60-day deadline, and the IRS does not count the move against the one-rollover-per-year limit.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions You can run as many trustee-to-trustee transfers as you need in a single year. The custodian usually liquidates your holdings to cash first, and the whole process runs about two to four weeks.
Indirect (60-Day) Rollover
Here the custodian sends a check to you, and you have 60 days to deposit the full amount into the annuity. Miss the deadline by a day and the IRS treats the entire distribution as taxable income. If you are under 59½, you also owe a 10% early withdrawal penalty on top of the income tax.2Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Withholding is the second trap. Your custodian will hold back 10% for federal income tax by default. You can file Form W-4R to waive it, but if you don’t, you only receive 90% of the balance. To complete a full rollover, you’d need to make up that 10% out of pocket and deposit the original amount into the annuity within 60 days. Whatever you fail to redeposit gets taxed as income.6Internal Revenue Service. Pensions and Annuity Withholding
The indirect method also triggers the one-per-year rule under IRC Section 408(d)(3)(B). You are limited to one indirect IRA-to-IRA rollover in any 12-month period, and the IRS treats all your IRAs — traditional, Roth, SEP, and SIMPLE — as a single account for this count.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Between the withholding, the 60-day clock, and the annual limit, a direct transfer is the safer choice in almost every situation.
Take Your RMD Before You Roll
If you have reached the age where required minimum distributions apply, you must take the year’s RMD before rolling anything over. The RMD itself is not eligible for rollover. Trying to move it into the annuity anyway doesn’t erase the RMD; the IRS treats that portion as a taxable distribution regardless of your intent.
One related planning tool is a Qualified Longevity Annuity Contract. A QLAC lets you use up to $210,000 of IRA funds to buy a deferred annuity that doesn’t begin paying until as late as age 85, and the amount inside the QLAC is excluded from the balance used to calculate annual RMDs.7Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs as Adjusted for Changes in Cost-of-Living The $210,000 cap applies across all your IRAs and employer plans combined.
How To Complete the Transfer
Start with the annuity company, not your current custodian. The insurance company provides the transfer paperwork, often labeled a Transfer of Assets form or Direct Rollover Request. You’ll fill in the current IRA’s account number, custodian name, address, and phone; the new annuity’s contract or pending application number and the insurer’s tax ID; and the transfer amount, whether that’s the full balance, a set dollar figure, or a percentage.
Match the names exactly. Any discrepancy between the name on your current IRA and the name on the annuity application — a middle initial on one but not the other, a maiden name on one side — usually gets the paperwork bounced by compliance. Pull a recent IRA statement to check spelling and current balance before you submit anything.
Some custodians require a Medallion Signature Guarantee rather than a notary stamp, particularly on larger transfers. A Medallion guarantee is issued only by financial institutions participating in a recognized program such as STAMP, SEMP, or MSP, and it carries stronger liability protection against forged signatures than a notarized signature.8Investor.gov. Medallion Signature Guarantees – Preventing the Unauthorized Transfer of Securities Ask your current custodian which they require before you sign anything.
Fees You’re Signing Up For
Rolling into an annuity moves you into a different fee structure, and the surprises tend to come from layers people didn’t see going in.
Surrender Charges on the IRA You’re Leaving
If your existing IRA already holds an annuity or mutual funds with back-end loads, you may owe surrender or deferred sales charges for pulling the money out. Read the fee schedule of the account you’re leaving before you initiate anything.
Surrender Charges on the New Annuity
Most annuities impose surrender charges during the first several years of the contract. A common schedule starts at 7% in year one and drops one percentage point a year, reaching zero in year eight. Many contracts let you withdraw up to 10% of the account value each year without triggering the charge. Schedules vary by insurer and product, so the fee disclosure in the contract is worth reading before you sign.
Ongoing Annual Fees
Variable annuities carry the heaviest fee load. The mortality and expense risk charge typically runs between 0.15% and 1.50% of account value each year, and you also pay the investment management fees on the underlying subaccounts. Riders for guaranteed income or enhanced death benefits generally add another 0.80% to 1.25% a year for fixed indexed annuities, and potentially more for variable annuities. Fixed annuities usually have lower explicit fees because the cost is embedded in the guaranteed rate.
State Premium Taxes
Some states levy a tax on annuity premiums, generally somewhere under 1% up to about 2.5% of the deposit. Not every state charges it. Ask the insurance company whether a premium tax applies where you live.
Protections After You Sign
When a broker-dealer recommends rolling IRA funds into an annuity, SEC Regulation Best Interest requires the recommendation to be in your best interest, not just the highest-commission option. The broker has to weigh the annuity’s fees against your current IRA, the available investment choices, any surrender charges you’d face, and whether the product fits your age, income needs, and goals. Material conflicts of interest have to be disclosed in writing before or at the time of the recommendation.9U.S. Securities and Exchange Commission. Regulation Best Interest – A Small Entity Compliance Guide
If you’re dealing with an insurance agent rather than a broker-dealer, most states have adopted the NAIC best-interest standard for annuity sales. The agent must understand your financial situation and insurance needs, disclose what products they’re licensed to sell and how they’re paid, and document why the recommended annuity is suitable. When the sale involves replacing an existing annuity, the agent also has to weigh whether surrender charges or lost benefits on the old contract make the switch a net loss.10National Association of Insurance Commissioners (NAIC). Suitability in Annuity Transactions Model Regulation
After you sign, you get a free-look period of at least 10 days, and longer in some states. During that window you can cancel without owing surrender charges and get a full refund.11Investor.gov. Free Look Period Use it. Read the full contract, verify that the fee schedule matches what you were told verbally, and check the death benefit and income provisions. If anything is off, cancel inside the free-look period and the money goes back into an IRA with no tax consequences.
Reporting the Rollover on Your Taxes
How the IRS sees the move depends on how you moved it. For a direct trustee-to-trustee transfer between IRAs, the outgoing custodian generally does not issue Form 1099-R because nothing was distributed to you.12Internal Revenue Service. 2025 Instructions for Forms 1099-R and 5498 The receiving insurance company issues Form 5498 reporting the rollover amount and the year-end fair market value.13IRS.gov. Form 5498 IRA Contribution Information
For an indirect rollover, the outgoing custodian issues a 1099-R for the full distribution, and the distribution code on the form tells the IRS whether the move was taxable or rolled. You report the distribution on your federal return and show the amount rolled over so you’re not taxed on it.14Internal Revenue Service. Topic No 413 Rollovers From Retirement Plans Keep both forms, the transfer paperwork, and any confirmation letters from the annuity company. If the IRS questions the tax status of the move years later, that file is your proof.