Turning an IRA Into Retirement Income: Withdrawals, Annuities and RMDs

Five ways to take income from an IRA

They aren't either-or. A common approach is guaranteed income for the bills you can't skip, and withdrawals from the rest.

Regular withdrawals

Set a monthly or yearly amount and keep the rest invested. Flexible, but a market drop early in retirement, while you're taking money out, can shorten how long the money lasts.

A fixed annuity (MYGA)

A guaranteed interest rate for a set term, often 3 to 10 years, a little like a CD from an insurance company. Bought inside your IRA, it keeps the IRA's tax treatment.

A fixed indexed annuity

Interest is linked to a market index, with a floor that protects your money in down years. Many offer an income rider that guarantees a yearly withdrawal for life, for an annual fee.

An income annuity

Exchange part of your balance for guaranteed monthly income, starting now or at a date you choose, for your life, for two lives, or for a set number of years.

A Roth conversion

Moving money from a traditional IRA to a Roth IRA means paying the tax now so later withdrawals can be tax-free. It's a tax decision worth modelling with a tax professional before you do it.

Rules worth knowing

Withdrawals are taxed as income. Everything you take from a traditional IRA counts as ordinary income that year, and before 59½ a 10% penalty usually applies on top.
Required minimum distributions. They start at 73, or 75 if you were born in 1960 or later. An annuity inside your IRA still counts toward the total you have to take from, and many annuities can pay your RMD automatically.
Longevity annuities (QLACs). A qualifying longevity annuity contract lets you set aside part of your IRA, up to a dollar limit set by the IRS, for income that can start as late as 85. That amount is left out of your RMD calculation until then.
Moving an IRA. Use a trustee-to-trustee transfer. An indirect rollover, where a check comes to you, is limited to one per 12 months across all your IRAs, and missing the 60-day deadline makes it taxable.
Roth IRAs. There are no RMDs for the original owner, and qualified withdrawals are tax-free once you're 59½ and the account is at least five years old.

IRA questions

Can I put my IRA into an annuity?

Yes. An annuity can be owned as an IRA and funded by a direct transfer from your current IRA, so the move itself isn't taxed or penalised. The money keeps its IRA tax treatment.

Does an annuity inside an IRA give me extra tax deferral?

No, and anyone who says it does is mistaken. The IRA is already tax-deferred. The reasons to use an annuity inside an IRA are its other features: protection from market losses, a guaranteed rate, or guaranteed income for life.

Will an annuity cover my RMDs?

Many annuities held as IRAs let you take your required minimum distribution each year without a surrender charge. Ask the insurer how it works before you buy.

How much income could my IRA give me?

It depends on your balance, your age when income starts, whether it should cover your spouse too, and the option you choose. The assessment gives a licensed professional what they need to show you real numbers.

See what your IRA could pay you each month

Five quick questions, about a minute. Then, if it's useful, a free income review with a state-licensed professional.

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