Do Immediate Annuities Satisfy RMDs?

This question comes up almost every day. Someone buys an Immediate Annuity with IRA money and then asks if that income satisfies their Required Minimum Distributions. The short answer is yes, but only if it is structured correctly. The long answer is where most people get tripped up.

What the IRS Cares About

The IRS does not care what kind of annuity you own. They care about when and how they get paid. When you turn the age that triggers Required Minimum Distributions, the IRS expects a certain amount of taxable income to come out of your qualified account every year. That rule does not vanish just because you bought an annuity.

If you buy a Single Premium Immediate Annuity inside your IRA, the monthly income payments are considered distributions. Those payments count toward your RMD for that year because the money is leaving the qualified account and being paid directly to you.

So yes, in that case, your Immediate Annuity income can satisfy your RMD requirement. But there are rules to follow, and not every setup qualifies.

The Difference Between Immediate and Deferred Income Annuities

A Single Premium Immediate Annuity starts paying income within 12 months of purchase. That is why it can easily align with your RMD schedule. The payments are predictable, fixed, and taxable when received, which fits the IRS definition of a required distribution.

A Deferred Income Annuity, however, does not start income until a future date you select. If you buy a DIA with qualified funds and the income start date is beyond your RMD age, you still have to take your RMD from other assets until those DIA payments begin.

That distinction is critical. Immediate means now. Deferred means later. The IRS does not wait for later.

How a QLAC Changes the Rules

If you want to delay Required Minimum Distributions on a portion of your IRA, that is where a Qualified Longevity Annuity Contract comes in. A QLAC allows you to take part of your qualified money, remove it from your RMD calculation, and defer that taxable income until the chosen start date.

But do not confuse a QLAC with an Immediate Annuity. They are different tools. A QLAC is a Deferred Income Annuity that operates under special IRS rules. An Immediate Annuity is simply a payout machine that starts right away.

Why Contract Structure Matters

When setting up an Immediate Annuity with IRA funds, your agent must clearly mark it as “qualified” on the application. That ensures the payments are treated correctly for tax purposes. The carrier will issue annual 1099-R forms for the income you receive, which report the taxable amount to the IRS.

If your Immediate Annuity only uses part of your IRA balance, the rest of the account will still have its own RMDs to meet. That is why many retirees coordinate their Immediate Annuity income with withdrawals from other accounts to hit the required number each year.

This is not something to guess about. It must be done with precision, or you could face IRS penalties for missing your Required Minimum Distribution.

The Bottom Line

Your Immediate Annuity income can absolutely count toward your RMDs, but only if the contract is structured properly inside a qualified account. Deferred Income Annuities cannot cover RMDs until payments start, and non-qualified annuities do not apply to RMD rules at all.

When in doubt, always verify with your CPA or tax professional. The IRS does not forgive “I did not know.” They expect their share, and they expect it on time.

An Immediate Annuity can simplify your retirement income and keep you compliant, but it has to be done the right way. You own an annuity for what it will do, not what it might do. Guarantees are in the contract. Period.