What is the 5-year rule for annuities?
June 12, 2025 by Angelica Leicht
In today’s uncertain financial environment, annuities can seem like the quiet, dependable retirement funding option, offering guaranteed income and helping protect against outliving your savings. And, with sticky (but cooling) inflation still putting pressure on household budgets and the stock market delivering mixed signals, the idea of guaranteed monthly payouts is even more appealing, especially for those nearing retirement or planning their estate.
But while annuities can offer stability, they also come with some complex rules that aren’t always obvious at first glance. One of the most important, particularly for those who want to leave an annuity to their loved ones is the five-year rule. This Internal Revenue Service (IRS) regulation isn’t about investment performance or insurance guarantees, though. It’s about how and when beneficiaries can take money out of an annuity after the original owner dies, and how much they will end up owing in taxes.
Wink’s Moore on the Market: Ever hear about the annuity 5-year rule?
No?
Here’s a primer, to get you started. -sjm
