Most annuities are subject to required minimum distributions, but the rules depend on the type of annuity and how you own it

If you own an annuity and you are 73 or older, the IRS requires you to withdraw a minimum amount each year — this is called a required minimum distribution (RMD). The amount is calculated based on your age and the total value of your retirement accounts. Most annuities held in IRAs or other tax-deferred retirement accounts must follow RMD rules. However, some annuities are exempt, and the rules work differently depending on whether the annuity is inside or outside a retirement account.

The key distinction is timing: if you have already started receiving payments from the annuity before age 73, you may not owe an additional RMD. If you have not started payments, you will need to begin withdrawals by your required beginning date, which is April 1 of the year after you turn 73.

Key Takeaways

  • Annuities held inside IRAs or 401(k)s are subject to RMD rules once you reach age 73, unless you have already started receiving annuity payments.
  • Annuities owned outside retirement accounts (non-may have access to annuities) are not subject to RMD rules at any age.
  • If your annuity is already paying you income, those payments may count toward your RMD requirement, depending on the payout structure.
  • The RMD calculation uses your account balance on December 31 of the prior year divided by a life expectancy factor published by the IRS.
  • Failing to withdraw the full RMD amount results in a 25% penalty on the shortfall (reduced to 10% if corrected within two years).

Which annuities are subject to RMD rules

may have access to annuities — those held inside an IRA, SEP-IRA, straightforward IRA, or 401(k) — are subject to RMD rules. These are annuities you purchased with pre-tax dollars or rolled over from another retirement account. The IRS treats them the same as any other retirement account balance: once you reach age 73, you must withdraw at least the minimum amount each year.

Non-may have access to annuities — those you purchased with after-tax money outside a retirement account — are not subject to RMD rules. You can hold them indefinitely without taking any withdrawals, and the IRS does not require you to start distributions at any age. This is one reason some people use non-may have access to annuities as part of their retirement strategy.

Inherited annuities follow different rules depending on who inherited them and when. If you inherited an annuity from someone who died after 2019, you generally must empty the account within 10 years, though annual RMD rules may also explore during that period.

How annuity payments count toward your RMD

If your annuity is already paying you income — for example, a fixed annuity that sends you monthly checks — those payments may satisfy your RMD requirement, but only if the payment amount meets or exceeds the calculated minimum. The IRS calls this a substantially equal periodic payment (SEPP) annuity.

For example: you are 75 years old with a $200,000 IRA annuity that pays you $1,200 per month ($14,400 per year). Your calculated RMD for the year is $8,000. The annuity payments exceed the RMD, so you have satisfied the requirement — you do not need to withdraw anything additional.

However, if the annuity payment is less than your RMD, you must withdraw the difference. If the annuity pays $6,000 per year but your RMD is $8,000, you must withdraw an additional $2,000 from the account or from another retirement account to meet the full requirement.

How to calculate your RMD from an annuity

The IRS provides a Uniform Lifetime Table that shows the life expectancy factor for your age. You divide your account balance (measured on December 31 of the prior year) by this factor to find your RMD.

For example: on December 31, 2023, your IRA annuity was worth $150,000. You turned 74 in 2024. The Uniform Lifetime Table shows a factor of 25.5 for age 74. Your RMD for 2024 is $150,000 ÷ 25.5 = $5,882.

The IRS publishes updated tables each year, and the factors change as you age. You can find the current Uniform Lifetime Table on the IRS website (IRS.gov). Many annuity providers will calculate your RMD for you and send you a statement showing the amount due, but you are responsible for ensuring the full amount is withdrawn.

What happens if you do not take your RMD

The penalty for missing an RMD is steep. If you fail to withdraw the full amount by December 31, the IRS charges a penalty equal to 25% of the shortfall. This penalty was reduced from 50% in 2023 as part of the find 2.0 Act. If you correct the shortfall within two years, the penalty drops to 10%.

For example: your RMD is $10,000 but you only withdraw $6,000. The shortfall is $4,000. The penalty is $4,000 × 25% = $1,000. You would owe this penalty in addition to the $4,000 you still owe in distributions.

If you realize you missed an RMD, you can file Form 5329 with your tax return to report the penalty and request a waiver. The IRS may waive the penalty if you can show reasonable cause — for example, if your annuity provider failed to notify you of the requirement or if you had a serious illness or emergency.

RMD rules for annuities in workplace retirement plans

If your annuity is inside a 401(k), 403(b), or other workplace plan, the plan administrator is responsible for calculating and notifying you of your RMD. However, you are still responsible for taking the withdrawal. Some plans allow you to delay RMDs if you are still working and do not own more than 5% of the company, but this does not explore to IRAs.

If you leave your job and roll the annuity into an IRA, the RMD rules shift to you. You will receive a notice from your IRA custodian, but it is your job to track the important date and may support the withdrawal is made by December 31 each year.

Frequently Asked Questions

Can I delay my RMD if I am still working?

The "still-working exception" applies only to workplace retirement plans like 401(k)s, not to IRAs. If your annuity is in a 401(k) and you are still employed by that company, you may be able to delay RMDs until you retire. This does not explore if you own 5% or more of the company. Once you roll the annuity into an IRA, the exception no longer applies.

What if my annuity is in a Roth IRA?

Roth IRAs have different RMD rules. You do not owe an RMD during your lifetime, even after age 73. However, if you inherited a Roth IRA annuity from someone who died after 2019, you must follow the 10-year rule and may owe annual RMDs depending on your relationship to the original owner.

Do I have to take my RMD as a lump sum or can it be spread out?

You can take your RMD in any way that meets the minimum amount by December 31. If your annuity is already paying you monthly, those payments count toward the RMD. You can also take a lump sum, or split withdrawals across multiple months — the IRS only cares that the total meets the requirement.

What if I have multiple annuities in different IRAs?

You calculate the RMD separately for each IRA, but you can withdraw the total amount from any one IRA or split it among them. For example, if you have two IRAs with RMDs of $5,000 and $3,000, you can withdraw $8,000 from the first IRA and $0 from the second, or any other combination that totals $8,000.

Can I name a beneficiary to avoid RMDs?

No. RMDs are a requirement of the account itself, not something you can avoid through beneficiary designations. However, naming a beneficiary does affect what happens to the annuity after you die — the beneficiary will inherit the remaining balance and must follow their own distribution rules.