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Quick Answer
You can also use annuities to fund traditional and Roth IRAs under Internal Revenue Code Section 408. If you buy an annuity to fund an IRA, you’ll receive a disclosure statement describing the tax treatment.
Using an annuity to fund an IRA
You can also use annuities to fund traditional and Roth IRAs under Internal Revenue Code Section 408. If you buy an annuity to fund an IRA, you’ll receive a disclosure statement describing the tax treatment.
Check that you are eligible
If you’re buying an annuity to fund an IRA or other tax-deferred retirement program, be sure that you’re eligible.
Other ways to fund an IRA
You can buy an annuity to fund an IRA, but you also can fund your IRA other ways and get the same tax advantages.
How money coming out is taxed
When you take a withdrawal or receive payments, you’ll pay ordinary income tax on all of the money you receive (not just the interest or the investment return). You also may have to pay a 10% tax penalty if you withdraw money before you’re age 59½.
Video: What is an individual retirement annuity?
About this video
In this short video, Jeffrey Scott McLeod, LUTC explains the difference between a Roth IRA and a Roth annuity, which shows how an individual retirement annuity is set up in practice. He points to the bottom of an annuity application, where there are boxes to check for how the annuity will be registered. Comparing it to Captain Picard telling Number One to make it so, he explains that you just check the box that says Roth IRA, and that is what turns your annuity into a Roth annuity. He closes by reminding viewers to get the Buyer’s Guide.
An individual retirement annuity is an annuity that serves as the IRA itself. The NAIC Buyer’s Guide explains that you can use annuities to fund traditional and Roth IRAs under Internal Revenue Code Section 408, and that you will receive a disclosure statement describing the tax treatment. The Guide also points out that you can fund an IRA in other ways and get the same tax advantages, so the reason to choose an annuity inside an IRA should be its other features, such as income payment options. Make sure you are eligible, and remember that withdrawals are taxed as ordinary income and may face a 10% penalty before age 59½.
Related reading: Can an annuity be held in an IRA?, How are annuity payments taxed when I take money out?, Is there a 10% tax penalty for early annuity withdrawals?.
Receive your free NAIC Buyer’s Guide to Fixed Deferred Annuities at annuitiesexplained.org/get-your-free-consultation-with-me/. Watch short educational videos at youtube.com/@AnnuitiesExplained. Contact Jeffrey Scott McLeod, LUTC for personalized guidance tailored to your state.
Questions & Answers
| Question | Answer |
|---|---|
| Can an annuity fund a traditional or Roth IRA? | You can also use annuities to fund traditional and Roth IRAs under Internal Revenue Code Section 408. |
| Will I get information about the tax treatment? | If you buy an annuity to fund an IRA, you’ll receive a disclosure statement describing the tax treatment. |
| Do I need to be eligible? | If you’re buying an annuity to fund an IRA or other tax-deferred retirement program, be sure that you’re eligible. |
| Do I need an annuity to get IRA tax advantages? | You can buy an annuity to fund an IRA, but you also can fund your IRA other ways and get the same tax advantages. |
| How are withdrawals and payments taxed? | When you take a withdrawal or receive payments, you’ll pay ordinary income tax on all of the money you receive (not just the interest or the investment return). |
| Is there a penalty for taking money out early? | You also may have to pay a 10% tax penalty if you withdraw money before you’re age 59½. |
Large Print Version
What is an individual retirement annuity?
You can also use annuities to fund traditional and Roth IRAs under Internal Revenue Code Section 408. If you buy an annuity to fund an IRA, you’ll receive a disclosure statement describing the tax treatment.
Can an annuity fund a traditional or Roth IRA?
You can also use annuities to fund traditional and Roth IRAs under Internal Revenue Code Section 408.
Will I get information about the tax treatment?
If you buy an annuity to fund an IRA, you’ll receive a disclosure statement describing the tax treatment.
Do I need to be eligible?
If you’re buying an annuity to fund an IRA or other tax-deferred retirement program, be sure that you’re eligible.
Do I need an annuity to get IRA tax advantages?
You can buy an annuity to fund an IRA, but you also can fund your IRA other ways and get the same tax advantages.
How are withdrawals and payments taxed?
When you take a withdrawal or receive payments, you’ll pay ordinary income tax on all of the money you receive (not just the interest or the investment return).
Is there a penalty for taking money out early?
You also may have to pay a 10% tax penalty if you withdraw money before you’re age 59½.
Source: © 2025 National Association of Insurance Commissioners (NAIC). Reprinted with permission. Further reprint or distribution strictly prohibited without written permission of NAIC.
Annuities Explained is not affiliated with or endorsed by the National Association of Insurance Commissioners (NAIC).
Educational content provided by Jeffrey Scott McLeod, LUTC, National Insurance Producer License #558629. This is for informational purposes only and is not a recommendation to buy or sell any annuity. Guarantees are subject to the claims-paying ability of the issuing insurance company. Always consult your own advisor and read the full NAIC Buyer’s Guide. For residents of your state.
Jeffrey Scott McLeod, LUTC — Texas License #901162 (National Producer #558629).
Questions? Contact Jeff@AnnuitiesExplained.org.