You can roll an IRA into an annuity without owing taxes, provided the annuity is issued as a qualifying individual retirement annuity and you move the money through a direct trustee-to-trustee transfer. The funds keep their tax-deferred status (or tax-free status, for a Roth), and the IRS treats the move the same way it treats a transfer between two IRA custodians. Where people get into trouble is the transfer method, the timing, and whether the annuity contract itself actually meets the requirements in the tax code.
Which IRAs Can Move Into an Annuity
Traditional, Roth, SEP, and SIMPLE IRAs are all eligible, but they don’t all move the same way. A traditional IRA rolls into a traditional annuity IRA with no tax consequence. A Roth IRA has to go into a Roth-designated annuity to keep its tax-free treatment. Move a traditional IRA into a Roth annuity and you’ve done a Roth conversion — the full amount becomes taxable income for that year.1IRS.gov. Rollover Chart
SIMPLE IRAs carry an extra restriction. If you haven’t participated in the SIMPLE plan for at least two years, moving it into a non-SIMPLE IRA triggers a 25% early distribution penalty rather than the usual 10%. The two-year clock starts on the day the first contribution posts to your account, not the day you opened it.2Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
What Makes an Annuity IRA-Eligible
Not every annuity qualifies. Section 408 of the Internal Revenue Code spells out what an “individual retirement annuity” has to look like, and the insurance contract must check every box.3Office of the Law Revision Counsel. 26 USC 408 Individual Retirement Accounts The requirements the contract has to meet:
- It must be non-transferable. You can’t sell or assign it to anyone else.
- Premiums must be flexible. The contract cannot lock you into fixed payments.
- Regular annual contributions (money added beyond the rollover) cannot exceed the standard IRA limit, which is $7,500 for 2026, or $8,600 if you’re 50 or older. The rollover itself is not subject to that cap.4Internal Revenue Service. Retirement Topics – IRA Contribution Limits
- The contract can include an incidental death benefit but cannot function primarily as life insurance.
- The same required minimum distribution rules that apply to any IRA also apply here.
Fixed, variable, and indexed annuities can all work, as long as the insurer issues the contract in a form that meets these rules. Most major insurers offer IRA-designated versions of their annuities specifically for rollovers. Ask the agent or company representative to confirm in writing that the contract you’re being offered is an individual retirement annuity under Section 408.
Direct Transfer or 60-Day Rollover
This is where the real money risk sits. There are two ways to move the funds, and one is far safer than the other.
Trustee-to-Trustee Transfer
In a direct transfer, your current IRA custodian sends the money straight to the insurance company. You never receive the funds. Nothing is withheld, there’s no 60-day window to miss, and the IRS doesn’t even count it as a rollover for purposes of the one-per-year limit.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions You can do as many trustee-to-trustee transfers as you want in a year.
The custodian usually liquidates your holdings into cash and then wires the funds or mails a check payable to the annuity company. Start to finish, the process generally runs two to four weeks.
Indirect (60-Day) Rollover
With an indirect rollover, the custodian cuts the check to you, and you have exactly 60 days to deposit the full amount into the annuity. Miss the deadline by a day and the IRS treats the entire amount as a taxable distribution. If you’re under 59½, add a 10% early withdrawal penalty on top of the income tax.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
There’s a second trap. Your custodian will withhold 10% for federal income tax by default. You can file Form W-4R to waive that withholding, but if you don’t, you receive only 90% of your balance. To complete a full rollover, you’d have to come up with the missing 10% from other money and deposit the full original amount into the annuity inside the 60-day window. Anything you don’t roll over is 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’re limited to one indirect IRA-to-IRA rollover in any 12-month period, and the IRS counts all your IRAs — traditional, Roth, SEP, and SIMPLE — as one for that count.5Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions A direct trustee-to-trustee transfer avoids that limit altogether. If you can use the direct method, use it.
Take Your RMD Before You Roll
If you’ve reached the age where required minimum distributions apply, you have to take this year’s RMD before rolling over the remaining balance. The RMD is not eligible for rollover. Trying to include it doesn’t erase it — the IRS treats that portion as a regular taxable distribution regardless of your intent.
One related planning tool worth knowing: a Qualified Longevity Annuity Contract, or QLAC, lets you use up to $210,000 of IRA money for a deferred annuity that doesn’t start paying until as late as age 85.7Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs as Adjusted for Changes in Cost-of-Living Money inside a QLAC is excluded from the balance used to calculate your annual RMD, which can lower your required withdrawals in the years before payments start. The $210,000 cap applies across all your IRAs and employer plans combined.
How To Execute the Transfer
Start with the annuity company, not your current custodian. The insurer provides the paperwork, usually called a Transfer of Assets form or Direct Rollover Request. You’ll need to supply:
- Current IRA information: account number, custodian’s full legal name, mailing address, and phone number.
- Annuity details: your new contract number or pending application number, plus the tax identification number of the insurance company.
- Transfer amount: the full balance, a specific dollar amount, or a percentage.
The name on your IRA must match the name on the annuity contract exactly. A middle initial that appears on one document but not the other, or a maiden name versus a married name, will usually get the request kicked back by compliance. Have a recent IRA statement in front of you when you fill out the forms.
Some custodians require a Medallion Signature Guarantee rather than a standard notarization, particularly for large transfers. A Medallion guarantee comes only from a financial institution that participates in a recognized program such as STAMP, SEMP, or MSP, and it provides more liability protection against forged signatures than a notary seal does.8Investor.gov. Medallion Signature Guarantees – Preventing the Unauthorized Transfer of Securities Check with the current custodian before you submit anything to find out which they require.
Submit the completed paperwork through the annuity company’s secure portal or by certified mail. Once the insurer receives the funds, they apply them to your contract and send written confirmation.
Fees the Rollover Exposes You To
Moving from an IRA into an annuity shifts you into a very different fee structure. Understanding the layers before you commit is how you avoid regret later.
Surrender Charges on the Old Account
If your current IRA already holds an annuity or mutual funds with back-end loads, pulling the money out early may trigger surrender or deferred sales charges. Read your existing fee schedule before you initiate anything.
Surrender Charges on the New Annuity
Most annuities impose surrender charges if you withdraw money during the first several years. A common schedule starts at 7% in year one and drops one point each year, hitting zero in year eight. Many contracts let you withdraw up to 10% of the account value per year without triggering the charge. Schedules vary by insurer and product; read the fee disclosure carefully before you sign.
Ongoing Annual Fees
Variable annuities carry the heaviest ongoing cost. The mortality and expense risk charge alone typically runs between 0.15% and 1.50% of the account value per year, and you’ll also pay investment management fees on the underlying subaccounts. Optional riders for guaranteed income or enhanced death benefits generally add another 0.80% to 1.25% per year on fixed indexed annuities, and potentially more on variable products. Fixed annuities usually have lower explicit fees because the costs are baked into the guaranteed rate.
State Premium Taxes
Some states levy a tax on annuity premiums, typically ranging from under 1% to about 2.5% of the amount deposited. Not every state imposes one. Ask the insurance company whether a premium tax applies in your state before finalizing the rollover.
How the Rollover Shows Up on Your Taxes
Reporting depends on the transfer method.
For a direct trustee-to-trustee transfer between IRAs, the outgoing custodian generally does not issue a Form 1099-R because the money was never distributed to you.9Internal Revenue Service. 2025 Instructions for Forms 1099-R and 5498 The receiving insurance company will issue Form 5498 reporting the rollover amount and the year-end fair market value of the account.10IRS.gov. Form 5498 IRA Contribution Information
For an indirect rollover, the outgoing custodian issues Form 1099-R reporting the full distribution, and the distribution code signals whether the move is treated as taxable or as a rollover. You have to report it on your federal return even if no tax is owed. If you completed the rollover within 60 days, you show the distribution on the return and indicate the amount rolled over so it isn’t taxed.11Internal Revenue Service. Topic No 413 Rollovers From Retirement Plans
Keep both forms, the transfer paperwork, and any confirmation letters. If the IRS questions the tax treatment years later, those records are your proof.
Protections After You Sign
When a broker-dealer recommends rolling IRA funds into an annuity, SEC Regulation Best Interest requires them to act in your best interest, not just sell the product that pays the highest commission. The broker must weigh the annuity’s fees and available investments against your current IRA, consider any surrender charges you would face, and evaluate whether the recommendation fits your age, income needs, and financial goals.12U.S. Securities and Exchange Commission. Regulation Best Interest – A Small Entity Compliance Guide Material conflicts of interest have to be disclosed in writing before or at the time of the recommendation.
If you’re working with an insurance agent rather than a broker-dealer, most states have adopted the NAIC’s best-interest standard for annuity sales. That standard requires the agent to understand your financial situation, disclose what products they’re authorized to sell and how they’re paid, and document in writing why the recommended annuity is suitable.13National Association of Insurance Commissioners (NAIC). Suitability in Annuity Transactions Model Regulation When the recommendation involves replacing an existing annuity, the agent also has to consider whether surrender charges or lost benefits on the old contract make the swap a net negative.
After you sign, you get a free-look period of at least 10 days, longer in some states, during which you can cancel without owing surrender charges and receive a full refund.14Investor.gov. Free Look Period Use that window. Read the full contract, confirm the fee schedule matches what you were told, and verify that the death benefit and income provisions are what you expected. If anything is off, cancel during the free-look period and the money goes back to an IRA with no tax consequence.