What Is an IRA Annuity and Can I Withdraw at Retirement?

Annuities provide you with income during your retirement years.
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An individual retirement account annuity is a type of life insurance contract that provides monthly income payments during your golden years. Technically, you can access your IRA funds as soon you retire, but some annuities are more accessible than others and you may have to pay fees when you access your cash.


An IRA annuity is subject to the same tax rules as any other type of IRA or retirement account. From an Internal Revenue Service perspective, age 59 1/2 is the official retirement age. You can access your cash without paying tax penalties once you reach this age. You do, though, have to pay ordinary federal and state income tax on your withdrawals since IRAs are funded with pre-tax earnings. You can buy an annuity with IRA money or non-retirement funds, but either way annuities are subject to the same tax rules as IRAs. If you withdraw cash from your IRA annuity before reaching the age of 59 1/2, you have to pay a 10 percent tax penalty in addition to regular income tax.

Annuity Products

When you buy an IRA immediate annuity, the annuity company converts your lump sum premium into an income stream. You can set up the annuity so that the income stream starts as soon as you retire. Monthly payments are designed to last for a set number of years or for life. Once you start receiving income you can't make lump sum withdrawals from the account.

When you buy a deferred annuity, the annuity firm invests your money for a set number of years. When the contract matures, you can make a lump-sum withdrawal or convert the money into an income stream. You usually incur surrender penalties if you make a withdrawal before the contract ends. Depending on the length of your contract, your IRA annuity money may or may not be readily accessible when you retire.

Required Minimum Distributions

You can delay accessing your IRA funds if you retire later in life, but you must begin making taxable withdrawals in the year you turn 70 1/2, even if you're still working. The amount of these required withdrawals depends on your account balance and your life expectancy. If you don't take the required amount from the account, you have to pay a tax penalty equal to 50 percent of the amount you were supposed to withdraw. Some long-term IRA annuities are required-minimum-distribution-friendly, which means you can make required withdrawals without incurring surrender penalties or fees. In other instances, you may pay annuity fees to make your withdrawals.


Roth IRA annuities are bought with after-tax money, but they grow on a tax-deferred basis. You don't pay any taxes on Roth annuity withdrawals made after you reach the age of 59 1/2. You do pay taxes and applicable tax penalties on withdrawals of your earnings made before you reach that age, but you can get your principal back tax-free at any time. However, you also have to contend with fees imposed by your annuity provider, so just because you're older than 59 1/2 it doesn't mean your withdrawals are entirely free of fees.

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