How to Transfer a Simple IRA to an Annuity
Jason Stolz CLTC, CRPC
How to Transfer a Simple IRA to an Annuity is an important topic for employees and small-business owners who want more control and guaranteed income from their retirement savings. When done correctly through a trustee-to-trustee transfer, you can move your SIMPLE IRA into an annuity without paying taxes or penalties. This guide outlines how the process works, IRS rules to follow, and why an annuity can enhance your income strategy.
At Diversified Insurance Brokers, our advisors specialize in helping clients nationwide complete direct rollovers and transfers safely. Whether you’re nearing retirement or changing employers, we’ll help ensure your SIMPLE IRA funds stay qualified and continue growing toward long-term income goals.
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Why Transfer a SIMPLE IRA to an Annuity?
A SIMPLE IRA offers easy setup and tax-deferred growth for small employers—but it stops short of guaranteeing future income. Transferring your SIMPLE IRA to an annuity can help you:
- Lock in guaranteed income: Turn accumulated savings into a dependable retirement paycheck.
- Maintain tax advantages: Transfers keep your savings tax-deferred within the qualified system.
- Protect from market downturns: Fixed and indexed annuities shield principal from losses.
- Streamline retirement planning: Combine employer plan savings into one easy-to-manage annuity contract.
- Customize benefits: Add lifetime income riders or spousal continuation for lasting protection.
How the SIMPLE IRA-to-Annuity Transfer Works
To stay compliant with IRS rules, funds must move directly between custodians—your old SIMPLE IRA provider and the new annuity company. This trustee-to-trustee transfer ensures there’s no taxable event and no 60-day redeposit requirement. Here’s how the process typically unfolds:
| Step | Action | Outcome |
|---|---|---|
| 1. Verify eligibility | Confirm that your SIMPLE IRA is at least two years old or that you’ve left your employer. | Ensures the transfer is penalty-free. |
| 2. Choose annuity type | Select from fixed, indexed, or income annuities to match your income and growth goals. | Aligns annuity structure with retirement objectives. |
| 3. Initiate transfer paperwork | Your advisor and both custodians coordinate a direct, tax-free movement of funds. | Avoids taxes and keeps funds qualified. |
| 4. Contract issued | The insurer deposits your funds and begins accruing interest or index credits. | You begin tax-deferred accumulation immediately. |
Estimate Lifetime Income from Your SIMPLE IRA
Tax Rules for SIMPLE IRA Transfers
For the first two years of participation in a SIMPLE IRA, rollovers can only go to another SIMPLE IRA. After that period, you can transfer to any qualified annuity or IRA product tax-free through a trustee-to-trustee transfer. If the check is made payable to you personally, it becomes a taxable event and may incur early withdrawal penalties.
Our advisors ensure all paperwork is coded properly to preserve your tax-deferred status and avoid reporting errors with the IRS.
Benefits of Moving a SIMPLE IRA to an Annuity
- Reliable lifetime income: Replace uncertain returns with guaranteed income payments.
- Continued tax deferral: Your money keeps growing without current taxation.
- Principal protection: Avoid losses while still earning competitive rates or index-based returns.
- Simplified retirement management: Merge older employer plans into one streamlined income solution.
- Spousal and legacy benefits: Keep assets in the family with direct beneficiary options.
To see how similar strategies apply across different retirement accounts, visit How to Move a Retirement Account to an Annuity.
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FAQs: Transferring a SIMPLE IRA to an Annuity
Is transferring a SIMPLE IRA to an annuity taxable?
No. As long as it’s done as a trustee-to-trustee transfer after the two-year participation period, it’s tax-free and penalty-free.
Can I transfer my SIMPLE IRA before two years?
Only to another SIMPLE IRA. Moving to a traditional IRA or annuity before the two-year mark may trigger taxes and penalties.
Do SIMPLE IRA annuities continue to grow tax-deferred?
Yes. Your funds stay within the qualified system and continue compounding tax-deferred until withdrawals begin.
Can I roll over only part of my SIMPLE IRA?
Yes. You can move a portion into an annuity for guaranteed income while leaving the rest in market-based investments.
What type of annuity is best for SIMPLE IRA funds?
Fixed and indexed annuities are the most common, offering security, growth potential, and optional income riders.
When should I transfer my SIMPLE IRA to an annuity?
After two years of plan participation or upon retirement, when you want to secure lifetime income and reduce market exposure.
