Learn and Plan | How do required minimum distributions (RMDs) work with annuities?
A retired couple go on a walk outside in the park.

How do required minimum distributions (RMDs) work with annuities?

Aug 5, 2025, 11:45:39 AM | Reading Time: 5 minutes

When you’re planning for retirement, annuities can be a useful way to create steady income—whether you buy them on your own or hold them inside your retirement accounts. But if you have an annuity within a tax-advantaged retirement account, like a traditional IRA or 401(k), there are some extra IRS rules to keep in mind—specifically around required minimum distributions, or RMDs.

If you ever find yourself wondering how these RMD rules affect annuities inside your retirement accounts, you’re not alone. Many people are surprised to learn there are actually ways to use these mandatory withdrawals to help themselves and others—from investing, legacy planning, to supporting loved ones and charitable causes. Let’s break down how RMDs work for in-plan annuities, share some tips for staying on track with your withdrawals and then share actionable, strategic ideas to help you make the most of your RMDs.

Do RMDs apply to annuities?

RMD rules apply to qualified annuities, but not all annuities are subject to these requirements. It’s important to understand how RMD rules for annuities work to help avoid penalties. Some annuities, such as non-qualified annuities, may not require RMDs, while others, like those held in retirement accounts, must follow the standard RMD guidelines. This is a great question to bring up during your annual review with your financial professional—they can help clarify which of your accounts are affected.

Understanding RMD rules for annuities

RMDs apply to annuities held in qualified retirement accounts, such as traditional IRAs and 401(k)s. Starting at age 73 (or 75 in some cases), account owners must withdraw a minimum amount each year, based on IRS life expectancy tables and the annuity’s fair market value.

Accounts that typically require RMDs include:

  •  Employer-based retirement plans like a pension (defined benefit, 401(k), or 403(b)
  •  Profit-sharing plans
  •  Employee stock ownership plans (ESOPs)
  •  Traditional individual retirement accounts (IRAs)
  •  SEP IRA
  •  SIMPLE IRA
  •  457(b) plans if money is deferred on a pre-tax basis

At what age do I have to withdraw from my annuity?

There isn’t a specific age which you must begin withdrawing funds from an annuity, but taking out funds before reaching age 59½ typically results in an early withdrawal penalty. To comply with annuity RMD rules, withdrawals must begin by age 73 (or 75). Choosing an RMD-friendly annuity can make this process easier and help you avoid penalties while keeping your withdrawal schedule on track.

Calculating RMDs for annuities

For annuities held within tax-qualified retirement accounts (such as traditional IRAs or employer-sponsored plans), Required Minimum Distributions (RMDs) are calculated based on the contract owner’s age, the annuity fair market value as of December 31 of the previous year, and a life expectancy factor published by the IRS. Once you reach the IRS-specified age—currently age 73, or age 75 for certain individuals under the SECURE 2.0 Act—you are required to take a minimum withdrawal from your annuity each year per RMD rules for annuities.

If you fail to take your RMD on time, the IRS may assess a tax penalty equal to 25% of the amount not withdrawn. This penalty can be reduced to 10% if the withdrawal is made promptly after the missed deadline. Delaying RMDs until age 73 or 75 may result in larger required distributions and increased taxable income in later retirement years.

Because annuities can have unique features—such as guaranteed income options, riders, or joint life structures—the calculation and scheduling of RMDs can be more complex. It’s important to coordinate your annuity withdrawals with the rest of your financial plan to reduce tax liability and avoid unexpected issues in retirement.

As with any tax-related matter, consult a tax advisor or financial professional before making decisions about RMDs from your annuities. They can help determine your minimum distribution amounts and discuss strategies to help minimize the impact of RMDs on your retirement income.

Why purchase an annuity for strategic RMDs

Annuities in traditional retirement accounts are subject to RMDs, but provide tax deferral until withdrawal and can offer steady, predictable income that may satisfy RMD requirements automatically. Conversely, annuities in Roth IRAs are exempt from RMDs, allowing growth and future income without mandatory withdrawals, maximizing tax efficiency in retirement. It’s a good idea to reach out to your financial professional if you’re curious about whether an RMD-friendly annuity makes sense in your overall retirement plan and want to learn more.

Ideas for using RMD money

RMD rules require a person to start drawing income from qualified retirement savings accounts by April 1st of the year following the year they reach the specified age, regardless of whether the income is needed. While these withdrawals are mandatory, how the funds are used is up to you. Here are a few ways to make use of these withdrawals:

Reinvest distributions

If the funds from retirement accounts are not needed, one option is to reinvest the withdrawals into a taxable investment account and allow the savings to grow over time.

Treat yourself

Consider using the funds for something meaningful, such as going on a dream vacation, completing a home renovation, or purchasing a new car.

Create an emergency fund

If an emergency fund hasn’t been established or if reserves have been depleted, this may be a good opportunity to start rebuilding that financial safety net for the future.

Pay for tuition

RMD funds can be used to assist with grandchildren’s college expenses. Paying tuition directly to the school may help avoid gift tax issues, or contributing to a 529 college savings plan could be another option.

Pay life insurance premiums

If you don’t need the money from your RMDs for everyday expenses, you could use those funds to help pay premiums on a life insurance policy. The death benefit from a life insurance policy is generally paid income-tax-free to your beneficiaries and is typically outside of probate. If you already have a policy, RMDs can help cover ongoing premiums; if you’re considering new coverage, consult a financial professional to see if this approach fits your goals. This strategy allows your required withdrawals to support your legacy planning and potentially maximize what you leave for loved ones.

Share with family

Giving money to loved ones may be a good option, but gift tax limits may apply. Consult your tax advisor to understand the best way to gift money to family members.

Give to charity

If there’s a charity or cause you're passionate about, donating RMD funds can be a great option. Donations made through a qualified charitable distribution (QCD) are not subject to tax up to $100,000. The donation must be sent directly to a qualified 501(c)(3) charity since the funds cannot be personally received. Meet with your tax advisor for more details on RMDs and charitable giving.

Adding RMD-friendly annuities to a retirement plan

Understanding RMDs, calculating these amounts, and following RMD rules are important to avoiding penalties and making the most of your hard-earned savings. To further strengthen a retirement plan, consider adding RMD-friendly annuities, which may provide a reliable income stream while aligning with RMD requirements. As you plan for retirement and think about your future, consider meeting with your tax advisor. Need assistance with your retirement plan? Visit Midland National’s find an agent page to be connected with a financial professional near you. They can help you gain the knowledge you need to feel more financially empowered when the next chapter begins.


Neither Midland National nor any financial professionals acting on its behalf should be viewed as providing legal, tax, or investment advice. Please rely on your qualified tax professional.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals are independently contracted with (Midland National and are insurance licensed that will be paid a commission on the sale of an insurance product.

B4-MN-8-25