Which accounts can fund an annuity?
An annuity is bought with money that is already in an IRA or a plan, or with money from another annuity. The question is whether the account you have can legally move there without tax. This table is based on the IRS rollover chart and the IRS pages linked below it.
| Account | Can it move to an IRA or annuity? | The main trap | Guide |
|---|---|---|---|
| Traditional IRA | Yes, by direct transfer or rollover | A rollover you receive yourself counts against a one-per-12-months limit across all your IRAs. Direct transfers do not. | Read |
| Roth IRA | Only to another Roth IRA | It cannot move to a traditional IRA or a plan. | Read |
| SEP IRA | Yes | It counts toward the same one-per-12-months limit. | Read |
| SIMPLE IRA | Only to another SIMPLE IRA for your first two years in the plan; after that, yes | Breaking the two-year rule means income tax plus a 25% additional tax if you are under 59½. | Read |
| 401(k) at a former employer | Yes, to an IRA or another plan | A check payable to you has 20% withheld. Required minimum distributions cannot be rolled. | Read |
| 401(k) at a current employer | Only if the plan lets you take a distribution while you work | The plan document decides, not the IRS. | Read |
| 403(b) | Yes, generally to a traditional IRA | Hardship payments and lifetime installment payments cannot be rolled. | Read |
| Governmental 457(b) | Yes | The plan’s exemption from the 10% additional tax does not carry into an IRA. | Read |
| Non-governmental 457(b) or 457(f) | No | An attempted rollover is treated as an excess contribution and is subject to an excise tax. | Read |
| Pension (defined benefit) lump sum | Yes, if the plan offers a lump sum | Monthly lifetime payments cannot be rolled, and the election may be impossible to undo. | Read |
| Inherited IRA | Depends on whether you are the spouse | Spouses and other heirs have different options and deadlines. | Read |
| An existing annuity | Not a rollover: a 1035 exchange | It must move insurer to insurer, and partial exchanges have a 180-day rule. | Read |
Federal employees with a TSP should start with our guide to rolling over the TSP.
Rules that apply to every rollover
- Direct is safer than a check. Ask the plan or IRA to send the money straight to the new institution. A plan distribution paid to you is subject to mandatory 20% withholding even if you plan to roll it over, and to roll over the full amount you must replace the withheld money from other funds (IRS Topic 413).
- The 60-day clock. If you receive the money yourself, you generally have 60 days to deposit it in another plan or IRA. The IRS can waive the deadline in some cases where circumstances were beyond your control (IRS: Rollovers of retirement plan and IRA distributions).
- One IRA rollover per 12 months. The limit applies across all your IRAs together, including SEP, SIMPLE, traditional and Roth. It does not apply to trustee-to-trustee transfers, Roth conversions, or rollovers between a plan and an IRA.
- Required minimum distributions cannot be rolled over. The IRS lists age 73 as the starting age on its current page, and your own date depends on your birth year, so confirm yours (IRS: required minimum distributions).
- Report it. A rollover is not taxable when done correctly, but it is reportable on your federal tax return.
What an annuity changes, and what it does not
An IRA already defers taxes, so an annuity inside an IRA does not add tax deferral. What an annuity adds is a contract: possible income guarantees, protection features, or a way to turn savings into payments. What it costs is liquidity: many contracts carry surrender charges if you withdraw early, and the guarantees depend on the issuing company’s claims-paying ability. Read how annuities are taxed and what to ask before you roll over first.
If you want to compare product types, start with our annuities overview, fixed indexed annuities and single-premium annuities.
Which situation sounds like yours?
- You just left a job and have an old 401(k): your 401(k) options.
- You work for a school, hospital or nonprofit: 403(b) or 457(b).
- You own a small business: SEP and SIMPLE IRAs.
- You were offered a pension buyout: lump sum or monthly.
- You are 55 to 59½ and may need cash: the age 55 rule.
- You are approaching required withdrawals: QLACs and RMDs.
- You already own an annuity: the 1035 exchange.
- You inherited an IRA: spouse and non-spouse rules.
- You have Roth money: Roth rollover rules.
Want a second opinion before you move retirement money?
Request a no-obligation Retirement Income Review. We explain your options in plain English, with no pressure and no promises of returns.
Request my Retirement Income ReviewQuestions to ask before any rollover
- Is this a direct rollover, and will the money go straight to the new institution?
- What surrender charges apply, for how long, and what can I take out each year without a charge?
- What are all the fees, including rider fees, and who is paid a commission?
- What will I give up by leaving my current account, such as plan features, exceptions to the 10% additional tax, or a lower-cost option?
- Does the contract’s start date or payout schedule fit when I will actually need the money?
- Who is the issuing company, and what is its financial strength rating from independent agencies?
- What does my tax professional say about the tax result?
Take your time
A reputable carrier gives you a free-look period after you receive the contract, during which you can cancel and get your money back under the contract terms and state law. Use it to read the entire contract and share it with your tax professional. If anyone says an offer disappears unless you sign today, that is a reason to slow down.
Where to check these rules
Every rule on this page comes from the IRS. Read the source for your situation:
- IRS rollover chart (PDF)
- IRS: Rollovers of retirement plan and IRA distributions
- IRS Topic 413: Rollovers from retirement plans
- IRS: SIMPLE IRA withdrawal and transfer rules
- IRS: Retirement topics, required minimum distributions
- IRS: Comparison of tax-exempt 457(b) plans and governmental 457(b) plans
- IRS Rev. Proc. 2011-38 (partial annuity exchanges)
Availability and rules vary by state
Life insurance and annuity products, rates, riders and consumer protections differ by state, and a given product may not be available in every state. Honorbrook is licensed in the 11 states below; which products we can offer you depends on what carriers sell in your state. Each state’s insurance regulator can verify an agent’s license and answer consumer questions.
- Virginia: Virginia Bureau of Insurance
- Maryland: Maryland Insurance Administration
- North Carolina: North Carolina Department of Insurance
- South Carolina: South Carolina Department of Insurance
- Georgia: Georgia Office of Insurance and Safety Fire Commissioner
- Alabama: Alabama Department of Insurance
- Louisiana: Louisiana Department of Insurance
- Texas: Texas Department of Insurance
- Michigan: Michigan Department of Insurance and Financial Services
- Indiana: Indiana Department of Insurance
- West Virginia: West Virginia Offices of the Insurance Commissioner
This article is general information and is not tax, legal, investment or financial advice. Annuity guarantees depend on the issuing company’s claims-paying ability, and surrender charges and fees may apply. A licensed agent can help with your situation.