What Is a Roth Annuity? Annuity Glossary

What is a Roth annuity?

There is nothing exotic about a Roth annuity by itself. Strip away the label and it is a plain annuity contract that happens to sit inside a Roth IRA, and that IRA, not the annuity, is what sets the tax rules. Every ordinary Roth requirement carries over: you fund the account with money you already paid tax on, the balance grows without any tax drag, and once you have passed age 59 and a half and kept the account open at least five years, qualified withdrawals come out tax-free as well.

How you fund a Roth annuity

You can get money into a Roth annuity two ways. The first is a direct contribution, capped at the 2026 ceiling of $7,500, rising to $8,600 once you turn 50, and only available if your income sits under the phase-out thresholds. The second is a Roth conversion, where you move dollars out of a traditional IRA and into a Roth IRA, then use those converted funds to buy the annuity. Converting triggers ordinary income tax on the converted amount in the year you do it, but everything the account earns from that point forward, and every qualified withdrawal after that, is untouched by tax.

No RMDs during your lifetime

Here is where a Roth annuity really separates itself. Compare it with an annuity sitting inside a traditional IRA, where the lifetime required withdrawal rule still applies. A Roth annuity skips that rule entirely for as long as the original owner is alive, so nothing forces money out on a schedule and the balance can keep compounding indefinitely. That makes the structure genuinely useful for legacy planning, since heirs inherit the account along with its tax-free growth, though a non-spouse beneficiary generally has to drain it within 10 years under the current SECURE Act rule.

When a Roth annuity makes sense

A Roth annuity tends to fit a handful of situations especially well:

• You expect to land in a higher tax bracket later in retirement than you are in now.
• You would rather shrink the taxable income that future mandatory withdrawals from other accounts will create.
• You are treating the annuity mainly as a legacy or estate-planning asset.
• You have already filled up every other tax-deferred contribution slot available to you.

If you are a pre-retiree carrying high current income and can afford to skip this year's deduction, doing several smaller conversions over a handful of years locks in what today's brackets look like, then moves the balance into a wrapper that never gets taxed again. Our Roth conversion calculator can help you estimate whether that trade makes sense for your bracket.