Who Has to Take an Annuity RMD?

Annuities are appealing to many investors because they offer tax-deferred growth with the potential for guaranteed income that you cannot outlive. This tax-deferred growth is similar to the features of a 401(k) or a traditional IRA. While certain retirement accounts are subject to required minimum distributions (RMDs), those same rules can apply to annuities, as well. This specifically applies to annuities held within an IRA, 401(k) or other retirement account.

If you have questions about annuities, RMDs or retirement planning in general, consult with a financial advisor.

Annuity RMDs: When Do They Apply?

Annuities held inside tax-advantaged retirement accounts, such as IRAs or 401(k)s, are subject to required minimum distributions (RMDs). These distributions represent the minimum amount you must withdraw each year starting at a certain age, as determined by federal law. The purpose of RMDs is to ensure that individuals do not indefinitely defer paying taxes on their retirement savings.

The age at which RMDs begin depends on your birth year.

If you were born between 1951 and 1959, RMDs begin at age 73.
If you were born in 1960 or later, RMDs begin at age 75.

You’re required to take your initial RMD no later than April 1 of the year after reaching your designated RMD age. For each subsequent year, the deadline to withdraw the minimum amount is December 31.

The RMD amount is calculated using the IRS Uniform Lifetime Table and is based on your current age and account balance at the end of the previous year. The percentage you must withdraw increases over time and with age.

If you don’t take the required amount by the deadline, the IRS charges a 25% penalty on the shortfall. However, this excise tax may be reduced to 10% if corrected within two years. Regular income taxes also apply to the amount withdrawn.

For non-qualified annuities funded with after-tax dollars, the RMD rules do not apply. This means that individuals are not required to take distributions from non-qualified annuities at any specific age.

However, withdrawals from non-qualified annuities may still be subject to income taxes on the earnings portion of the distribution.

Use the RMD Calculator to project your annual withdrawals from pre-tax retirement accounts, including qualified annuities. The results can help you plan your taxes and time your distributions more effectively.

Required Minimum Distribution (RMD) Calculator

Estimate your next RMD using your age, balance and expected returns.

Quickly estimate your RMDs and when to take them

RMD Amount for IRA(s)

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RMD Amount for 401(k) #1

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RMD Amount for 401(k) #2

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About This Calculator

This calculator estimates RMDs by dividing the user's prior year's Dec. 31 account balance by the IRS Distribution Period based on their age. Users can enter their birth year, prior-year balances and an expected annual return to estimate the timing and amount of future RMDs.

For IRAs (excluding Roth IRAs), users may combine balances and take the total RMD from one or more accounts. For 401(k)s and similar workplace plans*, RMDs must be calculated and taken separately from each account, so balances should be entered individually.

^*The IRS allows those with multiple 403(b) accounts to aggregate their balances and split their RMDs across these accounts.

Assumptions

This calculator assumes users have an RMD age of either 73 or 75. Users born between 1951 and 1959 are required to take their first RMD by April 1 of the year following their 73rd birthday. Users born in 1960 and later must take their first RMD by April 1 of the year following their 75th birthday.

This calculator uses the IRS Uniform Lifetime Table to estimate RMDs. This table generally applies to account owners age 73 or older whose spouse is either less than 10 years younger or not their sole primary beneficiary.

However, if a user's spouse is more than 10 years younger and is their sole primary beneficiary, the IRS Joint and Last Survivor Expectancy Table must be used instead. Likewise, if the user is the beneficiary of an inherited IRA or retirement account, RMDs must be calculated using the IRS Single Life Expectancy Table. In these cases, users will need to calculate their RMD manually or consult a finance professional.

For users already required to take an RMD for the current year, the calculator uses their account balance as of December 31 of the previous year to compute the RMD. For users who haven't yet reached RMD age, the calculator applies their expected annual rate of return to that same prior-year-end balance to project future balances, which are then used to estimate RMDs.

This RMD calculator uses the IRS Uniform Lifetime Table, but certain users may need to use a different IRS table depending on their beneficiary designation or marital status. It's the user's responsibility to confirm which table applies to their situation, and tables may be subject to change.

Actual results may vary based on individual circumstances, future account performance and changes in tax laws or IRS regulations. Estimates provided by this calculator do not guarantee future distribution amounts or account balances. Past performance is not indicative of future results.

SmartAsset.com does not provide legal, tax, accounting or financial advice (except for referring users to third-party advisers registered or chartered as fiduciaries ("Adviser(s)") with a regulatory body in the United States). Articles, opinions and tools are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. Users should consult their accountant, tax advisor or legal professional to address their particular situation.

Who Has to Take an Annuity RMD?

Because annuities offer many benefits, they are sometimes held within a retirement account. These accounts are known as qualified annuities and can include 401(k)s, 403(b)s, 457s and similar accounts.

Qualified annuities must follow RMD rules just like any other tax-deferred retirement account. That means if you use tax-deferred retirement funds to buy a qualified annuity, you’ll be subject to RMDs once you reach RMD age (73 or 75).

Keep in mind that Roth IRAs do not require RMDs at all during the account holder’s lifetime. Roth 401(k)s did require RMDs until 2023, but the SECURE 2.0 Act eliminated RMDs for Roth 401(k)s, beginning in 2024.

Do Annuity Payments Satisfy RMDs?

The annuity payments you receive will count toward satisfying your RMD obligation for that specific account. However, if the annuity payment is less than the RMD amount, you must withdraw additional funds from the account to meet the requirement.

The SECURE 2.0 Act introduced several changes to retirement savings rules. This includes provisions related to RMDs and annuities.

One notable change is the treatment of excess income from a qualified annuity. Under the new rules, if a retiree receives more income from a qualified annuity than the RMD for that specific contract, the excess amount can be applied toward satisfying RMD obligations from other retirement accounts, including IRAs.

Imagine a retiree who holds a qualified annuity that will pay $10,000 annually. This payment exceeds the RMD for that annuity, which is $7,000. Under the SECURE 2.0 Act, the excess $3,000 can be applied toward satisfying the RMDs of other accounts the retiree holds, such as a traditional IRA.

This provision of the SECURE 2.0 Act offers greater flexibility for retirees who hold multiple accounts. It allows them to better manage their distributions while potentially reducing the administrative burden of separate RMD calculations for each account.

Bottom Line

Consumers who purchase an annuity within a qualified retirement account must take RMDs from their annuity. The age at which RMDs begin depends on birth year, and failing to take the required amount results in a tax penalty. Annuity payments count toward satisfying RMD obligations, but if the payment is less than the required amount, additional withdrawals are necessary. Thanks to a provision of the SECURE 2.0 Act, excess income from a qualified annuity can satisfy RMDs of other tax-deferred retirement accounts.

Tips for Investing

An annuity can be an important part of your retirement income strategy. To determine how much income that you’ll need to meet your retirement goals, use our retirement calculator to determine how much you’ll need to save for retirement.
If you’re considering investing with an annuity, we recommend speaking with a financial advisor who can help you compare the pros and cons of each product. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.