A required minimum distribution (RMD) is the smallest sum the IRS lets you leave untouched in a qualified retirement account, including a qualified annuity, before it forces a taxable withdrawal starting the year you turn 73.
What is a required minimum distribution?
Once you turn 73, the IRS stops letting you defer taxes on certain retirement accounts indefinitely. Starting that year, you must withdraw at least a minimum amount, called a required minimum distribution, from every qualified account you own. That includes traditional IRAs, 401(k)s, 403(b)s, and any annuity funded with those same qualified dollars. The IRS sets your RMD using your account balance and a life expectancy factor, and you owe ordinary income tax on whatever you withdraw.
How RMDs apply to an annuity
Holding your money inside an annuity contract instead of a brokerage account does not exempt you from this rule. If you funded your MYGA, fixed index annuity or other deferred annuity with IRA dollars, the carrier still expects you to take your RMD on schedule. Most carriers build in a workaround: the contract's free withdrawal provision usually lets you pull out enough each year to satisfy the requirement without triggering a surrender charge. Some products are even marketed as RMD friendly because that free withdrawal allowance is set high enough to cover a typical distribution on its own.
Two situations are the exception. RMDs do not apply to non-qualified annuities, meaning contracts funded with after-tax money, and they do not apply to a Roth IRA while the original owner is alive. If you are shopping for a qualified deferred annuity, ask how the free withdrawal percentage compares with the RMD you expect to owe before you sign anything, since a shortfall could force you into a surrender charge just to stay compliant.
What happens if you miss an RMD
The IRS treats a missed or short RMD as a real problem, not a minor paperwork slip. If you withdraw less than required, or nothing at all, the shortfall is hit with a 25% excise tax. That is a steep drop from the 50% penalty that applied before the SECURE 2.0 Act reduced it, and the rate can fall further, to 10%, if you correct the mistake within the IRS's correction window. Either way, the safer move is to mark your RMD deadline on the calendar and confirm your annuity's free withdrawal terms well ahead of time. Our RMD calculator will show the dollar amount you owe for the year based on your age and balance.
Frequently asked questions
What is a required minimum distribution?
Once you reach age 73, the IRS requires you to withdraw a minimum amount each year from qualified retirement accounts, including 401(k)s, 403(b)s, traditional IRAs and qualified annuities. The amount is based on your account balance and a life expectancy factor set by the IRS.
Do RMDs apply to annuities?
They do when the annuity is funded with qualified money, such as IRA dollars. The carrier will not calculate or send the withdrawal automatically, so you typically request it through the contract's free withdrawal provision. Non-qualified annuities and Roth IRAs are not subject to lifetime RMDs.
What happens if you miss an RMD?
The IRS charges a 25% excise tax on the portion of the RMD you failed to withdraw on time. That penalty can drop to 10% if you correct the shortfall within the IRS correction window, so it pays to fix a missed distribution quickly.
Written and reviewed by
James Forren Warren
Licensed Retirement Income Strategist · License #20551202
James Forren Warren is a licensed Retirement Income Strategist with Tax Free Wealth Plan. For the past five years he has helped individuals and families turn their savings into retirement income they can count on. He writes and reviews the annuity research on this site and keeps it plain: what a product does, what it costs you, and who it actually fits.
Educational only, not investment, tax or legal advice. Tax Free Wealth Plan LLC is a licensed insurance agency, not a registered investment adviser or broker-dealer. Annuities are not bank deposits, are not FDIC insured and are not guaranteed by any government agency. Guarantees are backed solely by the claims-paying ability of the issuing insurance company. Features, rates and availability vary by state and change over time; the contract and disclosure documents govern.