Quick Answer
The SECURE Act 2.0, fully phased in by 2026, introduces significant changes to how annuities are taxed and distributed in retirement. The RMD (Required Minimum Distribution) age now rises to 74 in 2026 (up from 73), QLAC contribution limits have increased to $200,000, and 401(k) plans must now allow annuity selection as a distribution option. Understanding these changes is critical for retirees who hold or are considering annuities to avoid penalties and optimize their after-tax income.
Key Takeaways
- RMD age increases to 74 in 2026 — you have an extra year before mandatory distributions begin from qualified annuities and retirement accounts
- QLAC contribution limit raised to $200,000 — nearly double the previous cap, allowing more tax-deferred longevity protection
- 401(k) annuity selection is now mandated — plans must offer an in-plan annuity option, expanding access to guaranteed income
- Tax withholding rules updated — annuity distributions now follow revised default withholding rates under SECURE 2.0
- Roth annuity advantages grow — Roth 401(k) annuity distributions remain tax-free, and more conversion opportunities exist
- Penalty-free withdrawals expanded — certain emergency and terminal illness provisions now apply to annuity contracts held in qualified plans
How SECURE Act 2.0 Changed Annuity Taxation
The Setting Every Community Up for Retirement Enhancement Act — known as SECURE 2.0 — was signed into law in late 2022, but many of its most impactful annuity provisions take full effect in 2025 and 2026. If you hold an annuity inside an IRA, 401(k), or other qualified plan, these changes directly affect when you must take distributions, how much tax you’ll owe, and what options your plan must provide.
For retirees already receiving annuity payouts, the changes are mostly favorable — giving you more control over timing and reducing the risk of penalties. But if you’re still in the accumulation phase, understanding the new rules is essential for making smart annuity purchase and conversion decisions.
The Big Picture: Three Pillars of Change
SECURE 2.0’s annuity changes fall into three categories:
- Distribution timing — when you must start taking money out
- Plan access — what annuity options your employer plan must offer
- Tax treatment — how annuity income is taxed and withheld
Let’s break each one down.
New RMD Age Timeline: 73 → 74 → 75
One of the most significant changes for annuity holders is the gradual increase in the RMD starting age:
| Year | RMD Age |
|---|---|
| 2023 | 73 |
| 2024–2025 | 73 |
| 2026 | 74 |
| 2027 | 74 |
| 2028+ | 75 |
What this means for your annuity: If you turned 73 in 2025, you were already subject to RMDs. But if you turn 73 in 2026, you now have until age 74 to begin taking distributions from your qualified annuity. That’s an extra year of tax-deferred growth.
For those holding QLAC contracts, this change is especially important. QLACs already delay RMDs on the portion of your retirement account invested in the contract until age 85. With the base RMD age rising, the total deferral window shifts accordingly.
Calculating Your First RMD Under the New Rules
If you’re turning 74 in 2026, your first RMD from any qualified annuity must be taken by April 1, 2027. However, waiting until April means you’ll take two RMDs in 2027 — which could push you into a higher tax bracket. Most financial advisors recommend taking the first RMD in the same calendar year it’s due.
Action step: Check your annuity contract for any automatic RMD calculation features. Some insurers updated their systems for SECURE 2.0; others may still use the old age-73 threshold. Don’t assume your custodian got it right.
QLAC Limits Increase Under SECURE 2.0
The Qualified Longevity Annuity Contract (QLAC) got a major boost. Previously capped at $135,000 or 25% of your retirement account balance (whichever was less), SECURE 2.0 raised the dollar limit to $200,000 effective 2024.
Why This Matters for Annuity Tax Planning
A QLAC lets you invest a portion of your IRA or 401(k) in a deferred annuity that doesn’t count toward RMD calculations until age 85. With the higher limit:
- A 65-year-old with a $1M IRA can now shield $200,000 from RMDs
- This reduces annual taxable income by roughly $7,000–$9,000 during the RMD years (ages 74–84)
- At age 85, the QLAC begins paying out, often providing a substantial income boost when other resources may be depleted
Combined with the higher RMD age, QLACs have become even more powerful for tax-efficient retirement income planning. Read our detailed QLAC RMD strategy guide for the full breakdown.
401(k) Annuity Selection: New Mandatory Options
SECURE 2.0 requires that 401(k) and similar employer-sponsored plans offer an in-plan annuity selection as a distribution option. This doesn’t mean you must buy an annuity — but your plan must make one available.
How This Works in Practice
Starting in 2025–2026, most 401(k) plans must:
- Include at least one annuity option in their distribution menu
- Provide a side-by-side comparison of lump-sum vs. annuity income
- Allow participants to direct part or all of their balance into the annuity
- Offer portability — the ability to transfer the annuity to another qualified plan or IRA
Fiduciary Safe Harbor
To encourage plan sponsors to include annuities, SECURE 2.0 created a fiduciary safe harbor. If the insurer meets certain financial strength requirements (rated in the top three ratings categories by at least one agency), the plan sponsor is shielded from liability if the insurer later fails to pay.
This is a game-changer for access — previously, many small and mid-size employers avoided offering annuities due to liability concerns.
Tax Withholding Changes for Annuity Distributions
SECURE 2.0 also updated the default tax withholding rules for retirement plan distributions, including annuity payments.
Key Changes
- Default withholding rate: For non-periodic distributions from qualified plans, the default withholding remains at 20% for federal taxes
- Periodic annuity payments: Default withholding follows standard wage-withholding tables, but you can elect out or adjust using Form W-4R
- State withholding: Varies by state — check your state’s rules, as some states have updated their default rates to align with federal changes
Avoiding Underpayment Penalties
With the new RMD age and potentially larger QLAC deferrals, some retirees may find their total tax withholding falls short. If you receive annuity income from multiple sources, review your combined tax withholding strategy to avoid IRS underpayment penalties.
The safe harbor rules require that you either:
- Owe less than $1,000 in tax for the year, OR
- Have paid in at least 90% of this year’s tax liability, OR
- Have paid in at least 100% of last year’s tax liability (110% if AGI exceeded $150,000)
Roth Annuity Considerations
SECURE 2.0 strengthened the case for Roth annuity strategies:
Roth 401(k) Annuity Distributions
If your annuity is held within a Roth 401(k), distributions remain completely tax-free as long as:
- The Roth account has been open for at least 5 years
- You are at least 59½
New in 2026: Roth 401(k)s are no longer subject to RMDs during the owner’s lifetime (this change took effect in 2024). This means a Roth annuity inside a 401(k) can grow tax-free indefinitely — a powerful estate planning tool.
Roth Conversions and Annuities
SECURE 2.0 also makes Roth conversions more strategic for annuity holders. If you have a taxable vs. qualified account annuity, converting a portion to Roth before RMDs begin can significantly reduce lifetime tax burden.
The key calculation: convert enough to fill your current tax bracket without spilling into the next one, then let the Roth annuity grow and distribute tax-free.
Action Steps for Current Annuity Holders in 2026
If you already own an annuity or are considering one, here’s your SECURE 2.0 checklist:
- Verify your RMD start date — confirm whether your first RMD is due at 73 or 74 based on your birth year
- Maximize your QLAC — if you haven’t used the full $200,000 limit, consider increasing your QLAC investment before year-end
- Review your 401(k) annuity options — check if your employer plan has added new annuity choices under SECURE 2.0
- Adjust withholding — use our annuity tax calculator to model your 2026 tax liability and update your W-4R accordingly
- Evaluate Roth conversion — with the higher RMD age, you may have an extra year to convert pre-tax annuity funds to Roth at lower rates
- Check beneficiary designations — SECURE 2.0 didn’t change the 10-year distribution rule for non-spouse beneficiaries, but make sure your annuity beneficiaries are current
Frequently Asked Questions
Did SECURE Act 2.0 change how annuity income is taxed?
No — the fundamental taxation of annuity income hasn’t changed. Qualified annuity distributions are still taxed as ordinary income, and non-qualified annuity earnings are taxed on a last-in, first-out (LIFO) basis. What SECURE 2.0 changed is when you must take distributions (higher RMD age), how much you can defer through QLACs ($200,000 limit), and what options your 401(k) must offer (mandatory in-plan annuity selection).
What is the new RMD age for annuity holders in 2026?
In 2026, the RMD age is 74. If you turn 74 in 2026, your first required minimum distribution from a qualified annuity or retirement account is due by April 1, 2027. This is part of the SECURE 2.0 phase-in that will eventually raise the RMD age to 75 by 2029.
Can I contribute more to a QLAC under SECURE 2.0?
Yes. The QLAC contribution limit was raised to $200,000 (from $135,000), though the 25% of account balance cap still applies. For someone with an $800,000+ IRA, the full $200,000 can now be allocated to a QLAC, delaying RMDs on that portion until age 85.
Does SECURE 2.0 require me to buy an annuity in my 401(k)?
No. SECURE 2.0 requires that 401(k) plans offer an annuity option — you are not required to select it. The law simply ensures that participants have access to guaranteed income options within their employer-sponsored plans.
How does the higher RMD age affect my annuity tax withholding?
With the RMD age rising to 74, your distributions (and thus withholding) may start a year later. This gives you an extra year of tax-deferred growth but also means one fewer year of tax payments. Review your overall withholding strategy to ensure you still meet the IRS safe harbor requirements for avoiding underpayment penalties.
Are Roth annuity distributions affected by SECURE 2.0?
Roth annuity distributions remain tax-free if the 5-year rule and age requirement are met. The key SECURE 2.0 benefit is that Roth 401(k) accounts (including any Roth annuity within them) are no longer subject to RMDs during the owner’s lifetime — giving you complete control over distribution timing.
Can I still do a Roth conversion with my annuity under SECURE 2.0?
Yes. Roth conversions of annuity funds are still permitted and may be even more advantageous now. With the higher RMD age giving you an extra year before mandatory distributions, you have more time to execute a multi-year conversion strategy that keeps you in a lower tax bracket.
Use Our Annuity Tax Impact Calculator
The best way to understand how SECURE 2.0 affects your specific situation is to model it. Our Annuity Payout Tax Impact Simulator lets you input your annuity value, payout type, tax filing status, and state to see your exact after-tax income under the new 2026 rules.
Try different scenarios — with and without QLAC deferrals, at different start ages (73 vs. 74 vs. 75) — and see how the SECURE Act 2.0 changes impact your bottom line. The calculator is free and takes less than 2 minutes.