How to Transfer an IRA Into an Annuity Step by Step

Moving money from an IRA into an annuity is a common retirement move, and when it’s done correctly, it doesn’t trigger any tax bill at all.

The process hinges on one detail most people get wrong: whether the money moves directly between custodians or passes through your hands first.

Get that part right, along with a handful of paperwork details, and the rest of the transfer is largely administrative.

Key Takeaways

• A direct, trustee-to-trustee transfer keeps IRA funds tax-deferred and avoids the 20% withholding that applies to indirect rollovers.
• Annuity sales hit a record $464.1 billion in 2025, with indexed products now making up 45% of the market, up from 24% a decade ago.
• Choosing the wrong annuity type or missing a surrender charge window can cost thousands of dollars, so product selection matters as much as the transfer mechanics.

Why This Move Is Happening More Often Right Now

The annuity market just closed its fourth straight year of record sales. According to LIMRA’s final 2025 figures, U.S. retail annuity sales totaled $464.1 billion, up from $434.1 billion in 2024 and roughly 70% higher than a decade ago. Registered index-linked annuities alone grew 20% year over year to $79.5 billion, ten times what they sold a decade prior.

Part of the demand traces back to demographics. LIMRA’s Bryan Hodgens has pointed to “Peak 65,” the stretch of years where roughly 4.1 million Americans turn 65 annually, many without a pension to fall back on.

Fixed-rate deferred annuities also gained ground, with 2025 sales up 6% to $165.3 billion, as savers looked for something with a guaranteed rate after a volatile stretch in equities.

Rates matter too. Three-year fixed annuities were paying up to 5.85% in early 2025, compared with roughly 4.65% on the best three-year CDs at the time.

That gap has narrowed as the Federal Reserve has cut rates through 2026, but annuities are still landing ahead of bank deposit products in many cases.

Athene co-president Mike Downing estimated annuities can offer close to 2 percentage points more yield annually than CDs or money markets. None of this means an annuity is right for every IRA holder. It means more people are asking the question, and more advisors are fielding it.

Direct Transfer vs. Indirect Rollover

This is the single most important decision in the entire process. A direct transfer moves funds custodian to custodian without ever touching your bank account. An indirect rollover puts a check in your hands first, and that check comes with strings attached.

If you receive a $100,000 distribution as an indirect rollover, the custodian withholds 20%, so you actually get $80,000 in hand.

To roll over the full amount tax-free, you’d need to deposit $100,000 into the new annuity within 60 days, meaning you’d have to come up with the missing $20,000 from somewhere else.

Most people don’t have that sitting around, and that’s exactly how avoidable tax bills happen. For this reason, nearly every advisor recommends the direct method regardless of account size.

The Step by Step Process

Once you’ve decided a direct transfer is the way to go, the mechanics follow a fairly predictable order.

1. Confirm eligibility and review your current account. Check whether your existing IRA has any surrender charges, market value adjustments, or contract restrictions on moving out. Traditional and Roth IRAs generally transfer freely; SIMPLE IRAs have a two-year participation requirement that must be satisfied first.
2. Decide what the annuity needs to do. Guaranteed lifetime income, principal protection, or continued tax-deferred growth are three different goals, and they point toward different products. Get clear on this before shopping rates.
3. Compare carriers and products. Look at payout rates, crediting methods, and the financial strength ratings of the insurance company (S&P, Moody’s, and A.M. Best ratings are the standard references). A high payout rate from a weak carrier isn’t much of a bargain.
4. Complete the annuity application with the new carrier. This establishes the contract, names beneficiaries, and selects the annuity type along with any riders. Some advisors note that the receiving carrier, not your old IRA custodian, typically drives this part of the process.
5. Open the receiving account as an IRA-qualified annuity. The paperwork must show the new contract is titled as an IRA, with matching beneficiary designations. Coding errors here affect how the transfer gets reported to the IRS.
6. Submit the transfer request and verify how the check is made payable. Funds should be sent directly to the insurance company “for the benefit of” (FBO) your IRA, not to you personally. This one line on the paperwork is where most costly mistakes happen.
7. Confirm the new contract is issued. Once funds arrive, the annuity begins crediting interest or index gains under its terms, and you can map out income timing and withdrawal rules from there.

Matching the Annuity Type to the Goal

Not every annuity does the same job, and this is where product selection gets specific rather than generic.

Fixed annuities pay a set interest rate for a defined period, similar in spirit to a CD but issued by an insurance company rather than a bank.

Fixed indexed annuities credit interest based on a market index like the S&P 500, with a floor that prevents losses, though gains are usually capped.

Registered index-linked annuities (RILAs) offer more upside potential than fixed indexed products but come with some downside exposure, which is why they’ve grown fastest among fee-based advisors working with higher-net-worth clients.

Immediate annuities convert a lump sum into income payments that start right away, which fits retirees who need cash flow now rather than years from now.

Variable annuities sit apart from the rest, since they invest in subaccounts similar to mutual funds and carry market risk along with the potential for higher returns. They tend to carry higher fees, so they deserve a closer look at the cost structure before signing anything.

Mistakes That Actually Cost Money

A few errors show up again and again in IRA-to-annuity transfers, and they’re avoidable once you know to check for them.

Rolling a non-qualified annuity, one funded with after-tax dollars, into an IRA isn’t allowed under IRS rules. Moving funds this way creates a tax mess that can take years to unwind.

Similarly, withdrawing IRA funds and depositing them into an annuity outside the 60-day window turns the entire amount into a taxable distribution, plus a 10% early withdrawal penalty if you’re under 59½.

Surrender charges are another trap. Many annuities carry a surrender period of six to ten years, during which withdrawing more than a set percentage triggers a penalty, sometimes as high as 7% to 10% in the first year.

If you’re transferring out of an existing annuity into a new one, check the old contract’s surrender schedule before initiating anything, since that fee applies regardless of whether the destination is another annuity or a plain IRA.

Costs and Riders Worth Reviewing

Riders can add real value, but each one comes at a cost that reduces overall return. Guaranteed lifetime withdrawal benefits, inflation adjustments, and enhanced death benefits typically add anywhere from 0.25% to 1.5% annually to the contract’s cost.

None of these are wrong choices. They’re trade-offs, and the right call depends on whether the guarantee is worth giving up some upside.

Conclusion

Transferring an IRA into an annuity is straightforward once the money moves directly between custodians and the receiving contract is titled correctly as an IRA.

The real work is in choosing the right product and carrier, since that decision affects returns, fees, and flexibility for years after the paperwork is signed.