How to Transfer an Inherited IRA to an Annuity
Jason Stolz CLTC, CRPC
Transferring an inherited IRA to an annuity can help beneficiaries meet IRS withdrawal rules while creating predictable, lifetime income. When you inherit an IRA, you face strict timelines for distributions—but annuities can simplify these requirements by providing guaranteed payments, tax deferral, and protection from market volatility.
This guide walks through how an inherited IRA annuity transfer works, who qualifies, how to stay compliant with the 10-year rule, and how to use annuities to align inherited assets with your retirement goals. If you’re still learning about inherited IRAs, start with how an inherited IRA works for foundational details.
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Why Transfer an Inherited IRA to an Annuity?
An annuity can transform a volatile investment account into a predictable, rule-compliant income stream. Inherited IRA annuities help:
- Meet IRS rules: Structured payments help satisfy the 10-year payout rule or annual RMD requirements.
- Maintain tax deferral: Funds remain within a qualified annuity, avoiding premature taxation.
- Lock in income: Turn the balance into guaranteed monthly or annual payments for up to life expectancy.
- Reduce market risk: Fixed or indexed options shield gains from downturns while allowing controlled growth.
Who Can Complete an Inherited IRA to Annuity Transfer?
Both spousal and non-spousal beneficiaries can transfer inherited IRA assets to a compliant annuity contract, as long as:
- The annuity is titled as a beneficiary or inherited IRA (not a personal IRA).
- The transfer is made directly between custodians (trustee-to-trustee).
- The annuity’s payout schedule aligns with the required distribution period.
If you inherited from a spouse, review what a spousal inherited IRA is to understand when a rollover into your own IRA may be preferable.
Understanding the 10-Year Rule
For most non-spouse beneficiaries, inherited IRAs must be fully distributed by December 31 of the tenth year after the original owner’s death. Some exceptions apply for eligible designated beneficiaries, including:
- Surviving spouses
- Minor children (until they reach majority)
- Disabled or chronically ill individuals
- Beneficiaries not more than 10 years younger than the original owner
An annuity can provide a schedule that aligns with these rules—either level annual payments or deferred income ending before the 10-year mark.
Step-by-Step: How to Transfer an Inherited IRA to an Annuity
- Verify eligibility: Confirm the account type and whether the IRA is traditional or Roth.
- Select an annuity structure: Choose between fixed, fixed indexed, or immediate annuities based on your income goals.
- Coordinate a direct transfer: Request a trustee-to-trustee transfer to the new annuity carrier—do not take a check personally.
- Align the payout term: Match your annuity payments to the 10-year distribution rule or the decedent’s life expectancy method.
- Confirm beneficiaries: Properly title the new contract and designate successor beneficiaries to preserve the chain of ownership.
Tax Considerations During the Transfer
When handled as a direct custodian-to-custodian transfer, there are no taxes triggered. Withdrawals, however, remain taxable for traditional IRAs and tax-free (if qualified) for Roth IRAs. It’s essential to align your income strategy with your tax bracket to avoid large year-end liabilities.
For high-income years, spreading withdrawals using the annuity’s structured payout schedule can reduce bracket creep and preserve more of your inheritance over time.
Best Annuities for Inherited IRA Transfers
- Fixed annuities: Offer guaranteed interest and predictable accumulation before income starts.
- Fixed indexed annuities: Provide growth potential linked to market indices with downside protection.
- Immediate annuities: Begin income payments within 12 months—ideal for beneficiaries nearing deadlines.
To compare your options, start with today’s current annuity rates and see how lifetime income annuities can meet IRS requirements while providing financial stability.
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FAQs: Inherited IRA Transfers
Can I transfer an inherited IRA to an annuity?
Yes. A direct trustee-to-trustee transfer into an annuity titled as a beneficiary IRA is allowed and keeps funds tax-deferred.
Does an inherited IRA annuity follow the 10-year rule?
Yes. Payments must still meet IRS distribution rules—usually the 10-year rule for non-spouses or life expectancy for spouses.
Is the transfer taxable?
No. As long as the funds move directly between custodians, the transfer remains tax-deferred. Taxes apply only to withdrawals.
Can I choose lifetime income?
Yes. Many inherited IRA annuities can pay lifetime income while still complying with distribution rules.
What happens if I miss the 10-year deadline?
Missing required distributions can trigger penalties and immediate taxation. Schedule payments early to stay compliant.
Can inherited IRAs be split among beneficiaries?
Yes. Separate inherited IRA accounts can be established for each beneficiary to allow personalized timing and annuity choices.
Can I transfer both traditional and Roth inherited IRAs?
Yes, as long as each maintains its tax type—traditional to traditional, Roth to Roth—and the annuity supports inherited accounts.
