Almost any U.S. adult can buy an annuity, but who can actually get a contract issued depends on age, residency, mental capacity, financial suitability, and whether the buyer has enough cash to meet the insurer’s minimum premium. The form of ownership matters too: an annuity bought by a business or the wrong kind of trust loses its tax deferral, which is usually the reason to buy one in the first place. Here is what determines whether you qualify.
Age Limits Set by the Insurer
Every insurance company sets its own age window. The floor is typically 18, matching general contract law, though some carriers set it at 21 for products tied to retirement accounts.
The ceiling depends on product type. Most major carriers cap new deferred fixed annuity applications at age 85. Immediate annuities, which begin paying income right away, often accept buyers in their 80s and sometimes beyond, because the shorter expected payout period is already priced in. Variable and indexed products fall in a similar range depending on the insurer.
Age also matters if the annuity will sit inside a retirement account. You must begin required minimum distributions from most retirement accounts by April 1 of the year after you turn 73, rising to 75 starting January 1, 2033.1Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) A long-deferred annuity purchased inside an IRA or 401(k) late in life can conflict with that schedule, since deferred annuities are built to postpone payouts rather than distribute them annually.
U.S. Residency and Tax Identification
You need a clear legal presence in the United States. Most insurers limit sales to U.S. citizens or lawful permanent residents with a valid Green Card. The application requires a Social Security Number or Individual Taxpayer Identification Number so the insurer can report earnings and distributions to the IRS.
Foreign nationals living outside the country are generally ineligible. Federal law requires insurers to verify customer identity before opening an account. Under the USA PATRIOT Act, the insurer must collect your name, address, date of birth, and identifying documents, then screen that information against government watchlists.2Financial Crimes Enforcement Network. USA PATRIOT Act Without a domestic address or valid tax identification number, the application fails at identity verification.3FFIEC. FFIEC BSA/AML Assessing Compliance with BSA Regulatory Requirements – Customer Identification Program
Mental Capacity to Sign
An annuity is a binding contract, so the buyer must be able to understand its terms, risks, and benefits. If an applicant has advanced cognitive impairment or dementia, an insurer may determine they cannot legally consent to the purchase.
A legal representative acting under a durable power of attorney or a court-ordered guardianship can buy an annuity on someone else’s behalf. The insurer will require notarized documentation of that authority before processing the application. Without evidence of either capacity or authorized representation, the contract will not be issued.
Financial Suitability Review
Meeting every other requirement still does not guarantee the sale. Most states have adopted suitability rules based on the NAIC’s Model Regulation #275, which requires the agent to evaluate your income, liquid net worth, existing financial obligations, and investment goals before completing a sale.4National Association of Insurance Commissioners. Model Law 275 – Suitability in Annuity Transactions The core question is whether the purchase would cause you unreasonable financial hardship, for example by tying up so much of your savings that you could not cover an emergency.
The regulation does not fix a single percentage of assets you must keep liquid. Instead, the insurer assesses whether you can maintain your usual standard of living after paying the premium. If the compliance review concludes you would be left without adequate cash reserves, the transaction is blocked.
Variable annuities carry an added layer because they are also securities. Broker-dealers recommending them must comply with the SEC’s Regulation Best Interest, effective June 30, 2020, which requires firms to act in the retail customer’s best interest when making a recommendation.5U.S. Securities and Exchange Commission. Frequently Asked Questions on Regulation Best Interest FINRA Rule 2111 continues to apply to securities transactions not covered by Reg BI.6Financial Industry Regulatory Authority. FINRA Rule 2111 – Suitability
How Much Money You Need
Minimum premiums are carrier-specific, not regulatory, and they vary widely by product. Fixed annuities can start as low as $1,000 at some carriers, though many require $5,000 or more. Variable and indexed annuities typically require between $5,000 and $25,000. Immediate annuities usually carry the highest minimums, often $25,000 to $100,000, because they begin paying income right away. Deferred annuities that accept ongoing contributions sometimes allow initial deposits of only a few hundred dollars.
If you cannot meet one insurer’s threshold, a different carrier may accept a smaller deposit. A very small premium produces a very small income stream, so the practical value of a minimum-deposit annuity is limited.
Individual, Trust, or Business Ownership
Who owns the contract changes the tax treatment, and getting this wrong can eliminate the reason to buy an annuity at all. Under federal tax law, if an annuity is held by a corporation, partnership, or certain trusts, the contract loses its tax-deferred status. The annual earnings are then taxed as ordinary income to the owner each year rather than deferred until withdrawal.7Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
Tax deferral is preserved in four situations:
- The annuity is held by a trust acting as an agent for a natural person. A revocable living trust with a named individual as beneficial owner generally keeps the deferral.
- The annuity sits inside a qualified retirement plan such as a 401(k), 403(b), or IRA.
- The contract is an immediate annuity purchased with a single premium that begins payments within one year.
- The annuity was acquired by an estate from a decedent.7Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
If you plan to hold an annuity in an irrevocable trust or a business entity, confirming in advance that the arrangement qualifies as an agent for a natural person is the difference between a working tax shelter and a taxable investment account.
Qualified vs. Non-Qualified Money
How you fund the annuity also affects the rules that follow. A qualified annuity is held inside a tax-advantaged retirement account. Contributions are typically pre-tax, the entire withdrawal is taxed as ordinary income, contributions are limited to what the underlying account allows, and RMDs start at 73 (rising to 75 in 2033).1Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
A non-qualified annuity is purchased with after-tax dollars outside a retirement account. There are no IRS contribution limits. Only the earnings portion is taxed on withdrawal, and there are no RMDs.8Internal Revenue Service. Publication 575, Pension and Annuity Income Both types grow tax-deferred inside the contract, and both are subject to a federal early-withdrawal penalty if you take money out too soon.
What Early Access Will Cost
Eligibility is only half the question. If there is any chance you will need the money back before the contract matures, two separate costs matter.
The first is the insurer’s surrender charge. Most contracts impose one if you withdraw during the first several years. The surrender period typically runs six to eight years, with a range of three to ten depending on the contract.9Investor.gov. Surrender Charge The charge usually starts around 7% in the first year and steps down by roughly a percentage point per year to zero. Many contracts let you withdraw up to 10% of account value annually without triggering it.
The second is a federal tax penalty. The IRS adds a 10% additional tax on the taxable portion of any annuity distribution taken before age 59½, on top of the ordinary income tax already owed. Exceptions include distributions after death or disability, a series of substantially equal periodic payments based on life expectancy (as long as the schedule is not modified before the later of five years or age 59½), and payments from an immediate annuity that begins income within a year of purchase.7Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
The two charges stack. A 45-year-old who withdraws $50,000 from a deferred annuity in the first contract year could owe a 7% surrender charge to the insurer plus a 10% penalty to the IRS on the taxable gains, on top of ordinary income tax. If early liquidity is a real possibility for you, that math is often reason enough to hold off, even when every other eligibility box is checked.