Annuity Inside an IRA: The Tax Question Disappears, the Real Questions Remain
Written and reviewed by Hans Goldstein, licensed insurance producer, NPN 20602398 · CA Insurance License #4273294Last reviewed · Published October 3, 2026
Why the tax argument goes away
The annuity tax gap exists only for non-qualified money
| Non-qualified (after-tax) money | Inside an IRA or 401(k) | |
|---|---|---|
| Brokerage account | Long-term gains taxed at 0/15/20%; step-up at death | Every withdrawal is ordinary income; no step-up |
| Deferred annuity | Gains taxed as ordinary income, gain first; no step-up | Every withdrawal is ordinary income; no step-up |
| Difference | Real: the annuity is taxed less favorably | None on taxes |
Annuity rules: IRC 72; step-up: IRC 1014. Brokerage rates for 2026: Rev. Proc. 2025-32.
A common objection is that "you do not need tax deferral inside an account that is already tax-deferred." True, and it misses the point: you would not buy an annuity in an IRA for deferral. You would buy it for the guarantees.
- Lifetime income that can't stop. A SPIA, or an income rider or annuitization, pays as long as you live, backed by the claims-paying ability of the issuing insurer.
- Less sequence-of-returns risk. Guaranteed or floored principal (MYGA, FIA) and a guaranteed income floor mean a bad market year early in retirement doesn't force you to sell low (why the first bad years matter most).
- Inside an IRA or 401(k), the tax comparison is a wash. Every withdrawal from qualified money is ordinary income whether it sits in an annuity or a brokerage-style investment, and IRA assets get no step-up either way. The tax trap applies only to non-qualified (after-tax) money.
Use annuities for what they're great at, income and protection, not as a tax-efficient growth account. See current MYGA rates, SPIA rates, or get a free annuity review.
AI voices. Education, not tax or legal advice. Hans is paid a commission if you buy a policy through him. Comment REVIEW on the video for the checklist.
What to weigh instead
- Income you cannot outlive. Turning part of an IRA into lifetime income covers the risk of running out at 95.
- Sequence of returns. In 2022 a 60/40 portfolio fell about 16%; withdrawals taken in a drawdown lock in losses. A $1,000,000 IRA that fell to $840,000 produced a 2023 RMD of $34,146 at 75 instead of $40,650 (worked example). Sequence of returns risk.
- Fees and liquidity. A MYGA or FIA with no annual fee and a surrender schedule you can live with is different from a variable annuity with layered fees.
- RMDs. Required distributions start at 73 (75 from 2033) (IRC 401(a)(9)). Make sure the annuity allows RMD withdrawals without surrender charges.
Is an annuity right for your IRA?
Send your email and I'll send current MYGA and SPIA rates with a read on your plan within one business day.
We’ll email it to you. Hans Goldstein · NPN 20602398.
Rather talk it through? Or book 15 minutes on Hans’s calendar.
Where it usually fits
- A MYGA for the portion of an IRA you want safe and known for 3 to 7 years (MYGA rates).
- A SPIA or income rider for the portion that should become a paycheck (SPIA rates).
- Not usually: an annuity bought only for "growth" with high fees, when a low-cost IRA holding would do the same job.
Thinking about an annuity in your IRA?
Send the account size, your age and what you want the money to do. Within one business day you get a plain-English read and current MYGA or SPIA options.
Rather talk it through? Or book 15 minutes on Hans’s calendar, or call 213-414-2808.
Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer
Frequently asked questions
Sources
- 26 U.S.C. §72 (annuities and certain proceeds), Cornell LII
- Property acquired from a decedent generally takes a basis equal to fair market value at death, erasing unrealized gain; not available for IRD such as annuity gain (as of 2026)
- 2026 maximum zero rate amount / maximum 15% rate amount (taxable income): single $49,450 / $545,500; MFJ $98,900 / $613,700; HOH $66,200 / $579,600; MFS $49,450 / $306,850; estates/trusts $3,300 / $16,250 (as of 2025-10)
- $1,000,000 IRA in 60/40 at 12/31/2021; 2022 blended return about -16% (0.6 x -18.1% + 0.4 x -13.0% = -16.1%) to $840,000; age-75 RMD for 2023 (as of 2023)
- Applicable age for RMDs: 73 if age 72 after 2022 and age 73 before 2033; 75 if age 74 after 2032 (as of 2026)
Hans Goldstein, CA Insurance License #4273294 · NPN 20602398 · Goldstein & Co. LLC dba Goldstein Insurance Services, CA License #6016830
Contact: hans@hansgoldstein.com · 213-414-2808
General education, not tax or legal advice. Tax treatment depends on your facts and on current law, which can change. Talk to your CPA or estate attorney. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Guarantees apply only to the contractual terms of the policy. Caps, participation rates, loan rates, charges and dividends are not guaranteed and can change. Hans is paid a commission by the insurer if you buy a policy through him. For life insurance, ask and he will tell you what he earns on your specific policy. Product and company names are trademarks of their owners. Goldstein Insurance Services is an independent agency, not affiliated with or endorsed by any insurer named here. Commission ranges cited are from the public sources listed and vary by insurer, product, term, issue age and state. Annuities have surrender charges and other limitations; read the contract and disclosure before you buy.