If you own an annuity inside an IRA, one question can have a significant impact on your retirement income plan: 

Will your annuity automatically satisfy your Required Minimum Distribution (RMD)?

The answer is yes—but only if it's the right type of annuity and it's set up correctly.

Many retirees assume they'll have to calculate and manage RMDs every year for the rest of their lives. In reality, certain annuities can simplify the process, automate distributions, and remove much of the stress that comes with meeting IRS requirements.

Let's break down exactly how it works.

What Is an RMD?

A Required Minimum Distribution (RMD) is simply a mandatory withdrawal from your tax-deferred retirement accounts.

Once you reach the required age, the IRS requires you to begin taking money out of traditional retirement accounts such as:

• Traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• 401(k)s
• 403(b)s
• Other tax-deferred retirement plans

The reason is simple: you've postponed paying taxes while the money grew. Eventually, the IRS wants its share.

One of my favorite ways to think about this comes from IRA expert Ed Slott:

Part of your IRA is really an IOU to the IRS.

That money has never been taxed. RMDs are how the government begins collecting those deferred taxes.

When Do RMDs Start?

Current law requires RMDs to begin:

• Age 73 for many retirees
• Age 75 if you were born in 1960 or later

Missing an RMD can be costly.

The IRS may assess a penalty of up to 25% of the amount that should have been withdrawn, making it one of the more expensive retirement mistakes.

Another important point is that your required withdrawal generally increases as you age because the IRS assumes you'll continue spending down your retirement accounts over your lifetime.

Which Accounts Can Be Combined?

One area that often creates confusion is the aggregation rules.

Different retirement accounts follow different rules.

Traditional IRAs

If you own multiple Traditional IRAs, you calculate the RMD for each account individually, but you can take the total withdrawal from one or several IRA accounts.

403(b) Plans

These work similarly to IRAs.

You calculate each account separately, but the combined RMD may come from one or more 403(b) accounts.

401(k) Plans

These are different.

Each 401(k) requires its own separate RMD. You generally cannot aggregate multiple 401(k)s the way you can with IRAs.

Roth IRAs

During the original owner's lifetime, Roth IRAs do not require RMDs.

That's one reason Roth conversion strategies can become an important part of retirement tax planning.

How Are RMDs Calculated?

Fortunately, the math is fairly straightforward.

Each year you:

1. Use your December 31 account balance from the previous year.
2. Divide it by the IRS Uniform Lifetime Table divisor for your age.

For example:

• Age 73 uses a divisor of 26.5.
• Age 75 uses a divisor of 25.5.
• As you grow older, the divisor becomes smaller, meaning your required withdrawal gradually increases.

There are also special rules if your spouse is more than ten years younger and is your sole beneficiary, which may reduce the required withdrawal amount.

Important First-Year Rule

Many retirees don't realize they have until April 1 of the year after reaching their required beginning age to take their first RMD.

While that sounds helpful, delaying your first distribution means you'll likely take two RMDs in the same calendar year, which could increase your taxable income.

If you're planning Roth conversions, remember another important rule:

Your annual RMD must be taken before completing a Roth conversion for that year.

How Different Annuities Handle RMDs

Now let's answer the question most retirees really want to know.

Does your annuity actually cover your RMD?

The answer depends on which type of annuity you own.

MYGAs (Multi-Year Guaranteed Annuities)

A MYGA is one of the simplest annuity products available.

It offers:

• Guaranteed interest
• Fixed contract period
• Tax-deferred growth
• Predictable performance

When held inside an IRA, many MYGAs include an RMD-friendly withdrawal provision.

That means you can withdraw your required minimum distribution each year without surrender charges.

Many insurance companies also allow you to automate the process by:

• Calculating the RMD
• Sending the payment automatically
• Withholding taxes if requested

This can eliminate much of the annual paperwork.

Always verify that these provisions are included in your specific contract.

Fixed Indexed Annuities (FIAs)

Fixed Indexed Annuities offer a different approach.

They provide:

• Principal protection with a 0% floor
• Opportunity for market-linked growth
• Tax-deferred accumulation
• RMD-friendly withdrawal options

If your FIA is held inside an IRA, most insurance companies can automatically calculate and distribute your annual RMD.

Generally, you have three choices:

• Automatically distribute the annual RMD.
• Request specific withdrawals each year.
• Take no distribution from that particular FIA if you're satisfying your total IRA RMD from another eligible IRA account under the aggregation rules.

This flexibility gives retirees more control over where distributions come from while still complying with IRS rules.

FIAs with Income Riders

This is where retirement income planning becomes especially powerful.

Once guaranteed lifetime income has been activated, those income payments may satisfy your RMD requirement.

If your guaranteed income payment equals or exceeds your annual RMD, you've effectively met the IRS requirement automatically.

If your income payment falls short, you simply make up the difference with an additional withdrawal or by satisfying the remaining amount from another eligible IRA.

For many retirees, this creates an extremely simple retirement income system.

What About a QLAC?

Another option worth mentioning is a Qualified Longevity Annuity Contract (QLAC).

A QLAC allows eligible retirees to move a portion of IRA assets into a longevity annuity, delaying RMDs on those funds until income begins, potentially as late as age 85, subject to current IRS limits and rules.

For retirees who don't need immediate income, this may provide additional tax-planning flexibility.

The Bottom Line

So, will your annuity cover your RMD?

In many cases, yes.

Whether you own a MYGA, a Fixed Indexed Annuity, or an income annuity, today's annuity products often include features designed to simplify Required Minimum Distributions.

When structured properly, your annuity can:

• Automatically calculate your RMD
• Send your annual payment
• Handle tax withholding if elected
• Remove the burden of annual calculations

Retirement has enough moving parts already.

If your income strategy can eliminate one more annual task while helping you stay compliant with IRS rules, that's one less thing to worry about.

The key is making sure your annuity is designed to work with your overall retirement income strategy—not just as an investment, but as part of a coordinated plan.

Ready to Retire Financially Relaxed?

My goal is to help you eliminate the fear of running out of money, avoid costly mistakes, and retire with confidence and security. When you have safe, predictable income in place, you’re free to actually enjoy retirement — not just worry your way through it.

👉 Learn more at the Retirement Income School™.
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DISCLAIMER:
The information in this lesson is provided for general educational purposes only and does not constitute financial, legal, or tax advice. Retirement Income School™ and Dr. Amanda Barrientez do not provide individual investment recommendations. Always consult with a licensed advisor or tax professional before implementing any strategy discussed.