How to Buy an Annuity With Cash or Non-IRA Funds

You can buy an annuity using cash or other non-IRA funds.

That can include money sitting in a checking account, savings account, brokerage account, or another source of after-tax assets.

The process itself is relatively straightforward.

Once you identify the annuity and insurance company you want to use, the money is transferred directly from where it is currently held to the issuing life insurance company.

The more important decision comes before the transfer: choosing the annuity that provides the contractual guarantee you actually need.

Key Takeaways

• Most annuity types can be funded with non-IRA money.
• Cash used to purchase an annuity generally moves directly to the issuing insurance company.
• You can typically fund the contract by check or wire transfer.
• The money should not pass through the agent or agency handling the application.
• Non-qualified MYGA interest can grow tax-deferred inside the annuity.
• Non-qualified Immediate Annuity and Deferred Income Annuity payments can include both return of principal and taxable interest.
• Start by identifying the contractual guarantee you need before choosing the carrier or product.

What Does Non-IRA Money Mean?

Non-IRA money is generally money that is not currently held inside a qualified retirement account.

That can include money from:

• checking accounts
• savings accounts
• taxable brokerage accounts
• money market accounts
• other after-tax sources

In the annuity industry, this is often called non-qualified money.

Which Annuities Can Be Purchased With Cash?

Most major annuity categories can be purchased using non-qualified funds.

Depending on your objective, that can include:

• Single Premium Immediate Annuities
• Deferred Income Annuities
• MYGAs
• Fixed Index Annuities
• annuities with Income Riders

QLACs are different because they are specifically designed for eligible qualified retirement assets.

Start With the PILL Framework

Before deciding where to send the money, determine what you want the annuity to accomplish.

Annuities generally solve four contractual objectives through the PILL framework:

• Principal Protection
• Income for Life
• Legacy
• Long-Term Care

The source of the money does not determine which annuity you should buy.

Your financial goal does.

Ask Two Questions First

Before purchasing any annuity, ask:

What do you want the money to contractually do?

When do you want those contractual guarantees to start?

Those answers help determine the type of annuity that should be compared.

If you need lifetime income immediately, that may point toward an Immediate Annuity.

If you want principal protection and guaranteed interest, a MYGA may be appropriate.

If you need lifetime income several years from now, other products may need to be compared.

How Do You Fund an Annuity With Cash?

Once you have chosen the contract, the funding process is relatively simple.

The money can generally be sent directly to the annuity company through:

• a check payable to the insurance company
• a wire transfer to the insurance company

You are not literally sending physical cash.

The funds move through the normal banking system directly to the company issuing the annuity.

Where Does the Money Go?

The money should go directly from the financial institution currently holding it to the insurance company issuing the annuity.

For example, the transfer might be:

Bank → Life insurance company

or:

Brokerage firm → Life insurance company

The money does not need to pass through the agent's personal or business account.

The agent or agency facilitates the transaction.

The insurance company holds the assets and issues the contract.

Can You Apply for an Annuity Online?

Depending on the carrier and product, an annuity application may be completed electronically.

You can first compare the available guarantees and determine which contract fits your needs.

Once you decide to move forward, the application can be completed and submitted.

Information will then need to be verified before the contract is issued and funded.

What Happens During the Application Process?

The application process generally involves collecting information necessary for the insurance company to establish the contract.

That can include:

• personal information
• beneficiary information
• source of funds
• ownership information
• product selection
• premium amount
• payout instructions when applicable

Once the application is completed, you review and sign the paperwork.

Electronic signatures are commonly used.

What Happens After You Sign?

After the application is submitted, the insurance company processes the paperwork and establishes the policy.

The funding is then coordinated from the account currently holding the money.

Once the transfer is completed and the contract is issued, the insurance company becomes the custodian of the annuity assets.

You should also receive information for accessing your policy directly through the carrier.

Choose the Product Before Moving the Money

Moving the money is the easy part.

Choosing the correct contractual guarantee is more important.

Before funding an annuity, make sure you understand:

• the type of annuity
• the guarantee
• the carrier
• the surrender period
• liquidity provisions
• income provisions
• beneficiary provisions
• fees or Rider costs when applicable

Do not transfer money first and figure out the strategy later.

Shop Multiple Carriers

Annuities are commodity products.

The insurance company with the most recognizable name is not automatically the company providing the strongest guarantee.

Compare multiple carriers for the exact financial problem you are trying to solve.

If lifetime income is the objective, compare the contractual income payments.

If guaranteed accumulation is the objective, compare MYGA rates and terms.

Financial Strength Matters for Lifetime Income

Lifetime income may require relying on the issuing insurance company for decades.

That makes financial strength important.

The approach here is to compare A+ or better carriers for lifetime income and then identify the strongest appropriate contractual payout within that group.

MYGAs Can Be Evaluated Differently

A MYGA has a defined contract term.

You might own one for three, five, seven, or ten years rather than relying on the carrier for a lifetime payment.

That means carrier ratings can be evaluated differently from a lifetime income contract.

The rate, term, liquidity, and financial strength should all be considered.

Tax Advantages of Using Non-IRA Money

Using non-qualified money can provide certain tax advantages depending on the annuity.

The tax treatment is different from using traditional IRA money.

With traditional IRA assets, distributions are generally taxable as ordinary income because the money has not yet been taxed.

With non-qualified funds, you are using money that has already been taxed before entering the annuity.

That changes how future gains or payments may be taxed.

MYGAs and Tax-Deferred Interest

One benefit of purchasing a MYGA with non-qualified money is tax deferral.

The contractual interest can grow and compound inside the annuity without being taxed annually while it remains in the contract.

That is different from a CD held in a taxable account, where interest is generally taxable as it is credited or earned.

Tax deferral does not mean tax-free.

Taxes are generally owed when taxable gains are distributed.

How Non-Qualified Lifetime Income Is Taxed

Non-qualified Immediate Annuities and Deferred Income Annuities can receive different tax treatment.

Because the premium was funded with after-tax money, part of each payment may represent a return of your own principal.

Another portion represents taxable interest.

That means you generally are not paying income tax again on the portion considered return of principal.

Return of Principal vs. Interest

Suppose you purchase a lifetime income annuity using money from a savings account.

You already paid taxes on that original money.

When income begins, the payment can consist of:

• return of principal
• taxable interest

The taxation is therefore different from an income stream funded entirely with pre-tax traditional IRA money.

Non-Qualified Does Not Mean Tax-Free

The tax treatment may be favorable, but the annuity is not automatically tax-free.

MYGA gains are generally taxable when distributed.

The interest portion of qualifying lifetime income payments is generally taxable.

The advantage comes from tax deferral or the treatment of return of principal, depending on the annuity structure.

Work With a Tax Professional

Tax rules can vary based on the contract, source of funds, ownership structure, and individual circumstances.

If taxation is an important part of the decision, confirm the details with a qualified:

• CPA
• tax attorney
• tax professional

The annuity should be chosen for its contractual guarantee first.

The tax treatment should then be evaluated as part of the overall strategy.

What About Beneficiary Changes Later?

After the annuity is issued, beneficiary information can generally be updated according to the carrier's procedures.

Other servicing needs may include:

• address changes
• beneficiary changes
• starting income
• withdrawal requests
• contract questions

The insurance company ultimately maintains the contract, while the servicing agency can help coordinate those requests.

Do You Need to Interact Directly With the Insurance Company?

You should always have direct access to the insurance company holding your money.

However, an annuity servicing team can also help coordinate routine requests and paperwork.

The important point is that your funds remain with the issuing carrier, not with the agent.

Use the Least Amount Necessary

As with any annuity purchase, you do not automatically need to put all available cash into the contract.

Determine what financial problem needs to be solved.

Then use the amount necessary to solve it contractually.

If you only need a portion of your savings to establish lifetime income or principal protection, the rest can remain available for liquidity, investments, spending, and other goals.

Where to Compare Annuities

If you're ready to compare quotes, use our annuity calculators to evaluate current contractual guarantees from multiple insurance companies.

For lifetime income, compare the contractual payouts available for your age, state, and income start date.

For principal protection and guaranteed accumulation, compare current MYGA rates, terms, carrier ratings, and liquidity provisions.

The Bottom Line

Buying an annuity with cash or non-IRA funds is relatively straightforward.

Once you select the appropriate contract, money can move directly from your bank, savings account, brokerage account, or other source to the issuing life insurance company by check or wire.

The money should never need to pass through the agent.

The more important decision is selecting the right contractual guarantee before moving the funds.

Non-qualified assets can also provide useful tax treatment through MYGA tax deferral or the return-of-principal component of certain lifetime income annuities.

Start with the financial goal, compare carriers, understand the contract, and only then fund the annuity.

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