If you have a large amount of money sitting in a tax-deferred retirement account, Required Minimum Distributions can eventually become a major part of your retirement income and tax planning.

And one question I hear is: Can annuities help reduce Required Minimum Distributions, or even help satisfy most of the RMD requirement?

The answer is that, in the right situation, an annuity can potentially become an important part of your RMD strategy.

But I want to be precise here. Simply buying any annuity does not magically eliminate RMD rules. The way the annuity is owned, the type of retirement account involved, the distributions being paid, and the IRS aggregation rules all matter.

That said, I’ve seen situations where retirees use guaranteed annuity income to help satisfy a large portion of their RMD obligations while leaving other retirement assets invested.

Let’s walk through how that can work.

Need help choosing the best annuity for your unique situation? Have questions about getting an annuity? If so, it’s best to speak with an annuity specialist. Watch this short video to see how I can help you do this (at no cost to you!)

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What Are Required Minimum Distributions?

Required Minimum Distributions, commonly called RMDs, are minimum annual withdrawals that generally apply to traditional tax-deferred retirement accounts once you reach the applicable starting age.

This can include accounts such as:

• Traditional IRAs
• SEP IRAs
• SIMPLE IRAs
• 401(k) plans
• 403(b) plans
• Other qualified retirement accounts

For many retirement savers today, RMDs generally begin at age 73, although the exact rules depend on factors such as your birth year, account type, employment status, and whether you own part of the business sponsoring a workplace plan.

Here’s the problem.

You may not actually need the money.

You might have built a large 401(k) or IRA and prefer to leave that money invested. But once RMD rules apply, the government may require distributions whether you need the income or not.

That can potentially affect:

• Your taxable income
• Your retirement withdrawal strategy
• How long money remains invested
• Your broader tax planning
• Your Medicare-related planning
• The amount ultimately left to beneficiaries

This is why I believe RMD planning should happen before you simply start taking withdrawals without a strategy.

Can an Annuity Actually Reduce or Eliminate RMDs?

This is where we need to make an important distinction.

A standard annuity purchased with qualified retirement money does not automatically eliminate the RMD requirement. In many cases, the annuity remains subject to RMD rules.

However, annuity payments may help satisfy applicable RMD obligations, depending on how the accounts and contract are structured.

For example, if you own multiple traditional IRAs, the IRS generally requires you to calculate the RMD for each IRA separately. But you can generally aggregate those IRA RMD amounts and take the total required distribution from one IRA or portions from multiple IRAs.

That can create an interesting planning opportunity.

Instead of withdrawing proportionally from every IRA, you may be able to structure retirement income so that distributions from an IRA-held annuity help cover some or potentially most of your aggregated IRA RMD requirement.

However, you cannot automatically combine every retirement plan you own into one giant RMD calculation. A 401(k), for example, generally follows different distribution rules from a traditional IRA.

So when I talk about using an annuity to help cover RMDs, the account structure matters enormously.

💡 Pro Tip: Never assume that an annuity payment from one account automatically satisfies the RMD requirement for every 401(k), 403(b), and IRA you own. This needs to be reviewed based on the exact account types and current tax rules.

👉 Want help comparing annuity options for your retirement income strategy? Schedule a call with me.

How a $500,000 Annuity Could Fit Into a $1 Million Retirement Account Strategy

Let me show you the type of scenario I walked through in the original example.

I looked at someone in North Carolina with:

• $500,000 available for an annuity
• An owner currently age 60
• A spouse age 63
• Income beginning when the owner reaches 62
• Joint lifetime income covering both spouses

In the illustration I reviewed, the projected annual payouts included approximately:

• $40,710 from Corbridge
• $40,240 from North American
• Additional options from F&G, Clear Spring, Midland, and other carriers

In that specific illustration, Corbridge showed the highest payout.

Now, annuity rates and carrier rankings can change. Your age, state, sex where permitted and relevant to the contract, income start date, joint versus single life structure, product features, and current carrier pricing can all change the result.

But the planning concept is what matters.

Let’s assume this person has $1 million in qualified retirement money.

They decide to use:

• $500,000 for an annuity designed to create lifetime income
• $500,000 for continued investment and growth potential

The annuity illustration produces roughly $40,000 per year of guaranteed joint lifetime income.

That means the insurance company is contractually responsible for making the covered lifetime payments according to the contract terms, potentially across both lives under a joint-life structure.

For a married couple, I think that can be extremely important.

One spouse may live much longer than expected. So instead of building a retirement plan around an average life expectancy, you’re planning for the possibility that one person lives well into their 90s.

A single-life payout may be higher because the insurance company is covering one life instead of two. In the example I reviewed, changing the structure could increase annual income by roughly $3,000.

Again, the exact amount depends on the contract.

But this is why I always compare the options rather than assuming one annuity structure is automatically best.

How Annuity Income May Help Satisfy a Large RMD Obligation

Now let’s get to the heart of the strategy.

Suppose you have approximately $1 million of qualified money, and for illustration purposes your total required distribution is around $40,000 per year.

I’m using 4% here as a simplified illustration, not as a universal RMD percentage. Actual RMD calculations use IRS rules and applicable life-expectancy factors, and the percentage generally changes as you age.

Now imagine you use $500,000 to purchase an annuity generating approximately $40,000 per year.

Depending on the specific IRA structure and applicable RMD rules, those annuity distributions may help satisfy a substantial portion of the RMD amount you otherwise need to withdraw.

That is what I find interesting.

You may be using only part of your qualified assets to generate the cash flow that helps cover a much larger portion of the distribution requirement.

Meanwhile, the remaining qualified assets may stay invested.

But What If the Other $500,000 Keeps Growing?

This is the next question people ask.

Suppose you leave the other $500,000 invested in the market.

Over time, that account could potentially grow. Maybe after a number of years, it reaches $1 million.

Of course, that is only an illustration. Market growth is not guaranteed, and I would never assume an account will automatically double within a specific period.

At the same time, the annuity side of the strategy may also change.

In the example from the video, I illustrated annual income of approximately $43,660.

Under a simplified no-growth scenario, I showed the annuity-related account value declining significantly over roughly 10 years, potentially to around $136,000 in the illustration.

Meanwhile, the other qualified account might have grown to approximately $1 million.

This is where the distribution strategy can become interesting.

As the remaining value associated with one side of the strategy declines and the other account grows, the continuing annuity payment may still represent a meaningful portion of the overall RMD obligation.

Again, I want to emphasize that the exact tax treatment depends on the account structure and applicable RMD rules.

But from a planning perspective, the goal is straightforward:

Can I use predictable lifetime income to cover much of the money I’m already required to distribute while allowing other assets to remain invested longer?

For some retirees, that is worth exploring.

💡 Pro Tip: Don’t focus only on today’s annuity payout. Model what happens 5, 10, and 15 years later as other retirement accounts grow, decline, or experience market volatility.

👉 Want help seeing how much guaranteed lifetime income your retirement savings could potentially generate? Schedule a call with me.

Could You Stack Multiple Annuities Over Time?

Yes, and this is another strategy I discussed in the original example.

Suppose the first annuity generates around $43,000 per year.

Ten years later, perhaps that income is no longer enough to cover as much of your overall RMD obligation as you would like because your other qualified assets have grown.

At that point, you might decide to purchase another annuity.

For example, you could potentially add another contract generating:

• $20,000 per year
• $30,000 per year
• Or another amount appropriate for your situation

Now you have multiple lifetime income sources working together.

That could potentially give you:

• More predictable retirement income
• Additional coverage of applicable distribution needs
• Less pressure to sell investments solely to create cash flow
• Diversification across different income start dates
• Potential diversification across insurance carriers

I call this stacking income.

Instead of making one giant annuity decision at retirement, you may build guaranteed income in stages.

Maybe you buy one contract today.

Then five or ten years later, you review:

• Current interest rates
• Current annuity payouts
• Your RMD obligations
• Your remaining qualified balance
• Your spending needs
• Your spouse’s income needs

Then you decide whether another layer of lifetime income makes sense.

I personally like flexibility.

I don’t believe everyone should automatically put all their money into one annuity contract on one day.

Sometimes a stacked approach makes more sense.

What If You Use More of Your Qualified Money for Annuity Income?

Another approach from the transcript is more aggressive.

Suppose you have:

• $1 million in qualified retirement money
• $1 million in non-qualified money

You may look at the situation and say:

“I want my qualified assets focused primarily on producing retirement income, and I want my non-qualified assets available for other investments.”

In that case, you might consider using a larger portion of the qualified money for an annuity strategy.

The goal could be to create enough ongoing income that your qualified retirement assets are systematically distributed under a long-term plan rather than forcing you to make new withdrawal decisions every year.

Meanwhile, your non-qualified assets are not subject to the same lifetime RMD rules that apply to traditional tax-deferred retirement accounts.

That can create two distinct buckets:

Qualified Money

Potentially focused on:

• Lifetime income
• RMD planning
• Predictable distributions
• Covering essential retirement expenses

Non-Qualified Money

Potentially focused on:

• Growth
• Liquidity
• Legacy planning
• Flexible withdrawals
• Tax-aware investing

I think this can be a very clean way to think about retirement assets.

But I would not recommend blindly putting every qualified dollar into an annuity simply because you dislike RMDs.

You still need to consider:

• Liquidity
• Emergency reserves
• Surrender periods
• Inflation
• Growth needs
• Beneficiary goals
• Taxes
• Carrier strength
• Contract terms

An annuity should solve a specific problem.

It should not be purchased simply because someone showed you a high payout.

How Does a Roth Conversion Compare With an Annuity RMD Strategy?

The other major strategy I discussed is a Roth conversion.

This works very differently.

With a Roth conversion, you move eligible pre-tax retirement money into a Roth account and generally recognize taxable income on the converted amount.

That can be expensive.

For example, suppose you have $500,000 and want to convert it over two years.

You might consider:

• $250,000 in year one
• $250,000 in year two

Or perhaps you spread the conversion over five years:

• $100,000 per year
• For five years

That may help spread out the tax impact compared with converting the entire $500,000 in one year.

In the annuity comparison I reviewed for the video, Midland was an example of a carrier option that allowed the type of partial conversion strategy being illustrated.

With a five-year deferral in that particular illustration, the projected lifetime income was around $57,000 per year.

The idea was simple:

1. Convert portions of the money over several years.
2. Pay the applicable conversion taxes.
3. Move the assets into Roth treatment.
4. Begin the annuity income later.
5. Potentially receive future qualified Roth distributions tax-free.

Roth IRAs generally do not require lifetime RMDs for the original owner under current federal rules.

That is a major advantage.

But there is an obvious downside.

You may have to pay a very large tax bill today.

And this is where I see people make mistakes.

They hear that Roth money can potentially produce tax-free qualified distributions and assume the conversion must automatically be worth it.

Not necessarily.

You need to ask:

• How much tax will I pay on the conversion?
• What tax bracket will the conversion push me into?
• Where will the money to pay the tax come from?
• How long will it take to break even?
• Could the break-even point be in my 80s?
• What are my legacy goals?
• What future tax rates am I assuming?

I’ve seen situations where people run the numbers and decide a Roth conversion makes sense.

I’ve also seen situations where the projected break-even period is so long that they decide it simply isn’t worth paying the taxes upfront.

It depends entirely on your goals.

💡 Pro Tip: Never judge a Roth conversion only by the phrase “tax-free income.” Calculate the upfront tax cost and estimate a realistic break-even period.

👉 Want help comparing lifetime annuity income options before making a decision? Schedule a call with me.

Conclusion

So, can annuities help reduce Required Minimum Distributions?

Potentially, yes… but the strategy needs to be described correctly.

A standard annuity does not automatically make RMD rules disappear.

However, depending on the type of retirement accounts you own and how the annuity is structured, annuity distributions may help satisfy a significant portion of applicable RMD obligations.

For some retirees, that may mean using part of their qualified money to create lifetime income while leaving other assets invested.

For others, it may mean stacking multiple annuity contracts over time.

And for someone else, the better strategy may involve:

• A Roth conversion
• A partial Roth conversion
• A QLAC strategy
• Systematic withdrawals
• An annuity income strategy
• Or a combination of several approaches

The key is understanding the numbers before you make the decision.

That’s exactly what I do.

If you’re looking to purchase an annuity and want someone willing to show you the options available… not simply push one contract… I’d be happy to help.

You can also explore my website and research the annuity options available.

My website pulls data across multiple carriers so you can compare annuity payouts and get a better idea of what may be available before scheduling a meeting.

Need help with finding the best annuity for your retirement?

Click here to schedule a call with me.

On the call, I can help you:

• Determine what type of annuity is best for you
• Find the highest paying annuities for your unique situation
• Answer any other questions you may have

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