What Age Can You Collect an Annuity?

An annuity is a financial contract with an insurance company, where an individual makes payments as a lump sum or series of contributions. The company provides regular disbursements, often for a specified duration or for the remainder of the individual’s life. Annuities offer a consistent income stream, valuable during retirement. Understanding when these funds can be accessed or when payments begin is key.

Standard Annuity Payout Timelines

The age when annuity payments begin varies significantly, depending on the type of annuity and owner choices. For immediate annuities, also known as single premium immediate annuities, payments typically begin shortly after purchase, often within one year. This makes immediate annuities suitable for those at or near retirement who need prompt income. The “collection age” for an immediate annuity is the age of contract acquisition.

Deferred annuities, conversely, have an accumulation phase where funds grow tax-deferred, followed by an annuitization phase when payments begin. During accumulation, owners can make additional contributions and the contract value grows without current taxation on the earnings. Owners select the annuitization age or payout start date, which can be tailored to individual retirement planning needs. This chosen age can be set for a future date, such as age 60, 65, 70, or even later, aligning with specific retirement goals. While age 65 is frequently considered a common retirement benchmark, no single standard age exists; timing depends on the specific annuity contract and the owner’s financial strategy.

Early Access to Annuity Funds

Accessing annuity funds before a certain age has tax implications and penalties. Federal tax law imposes a 10% additional tax on withdrawals from qualified annuities, or the earnings portion of non-qualified annuities, made before age 59 1/2. This penalty is applied on top of the ordinary income tax due on the taxable portion of the distribution. For non-qualified annuities, which are funded with after-tax dollars, the contributions are generally returned tax-free and penalty-free first, with the penalty applying only to the earnings.

This 10% federal tax penalty primarily applies to the taxable earnings from all annuities, but it is particularly relevant for annuities held within qualified retirement plans, such as Traditional Individual Retirement Arrangements (IRAs) or 403(b) plans. Several common exceptions exist to this early withdrawal penalty. Distributions made due to the death of the owner or annuitant are typically exempt from the 10% additional tax. Similarly, if the owner or annuitant becomes totally and permanently disabled, withdrawals may also be penalty-free.

Another exception involves withdrawals made as part of a series of substantially equal periodic payments (SEPPs), which must follow specific IRS guidelines to avoid the penalty. These payments must continue for the longer of five years or until the individual reaches age 59 1/2. If the payments begin as a true annuitization, meaning the contract starts paying out as a regular income stream, the 10% penalty generally does not apply. Withdrawals used for unreimbursed medical expenses exceeding 7.5% of adjusted gross income may also qualify for an exception to the penalty.

Mandatory Annuity Distributions

Certain types of annuities are subject to rules regarding when distributions must begin, known as Required Minimum Distributions (RMDs). These rules primarily apply to annuities held within tax-deferred qualified retirement accounts, such as Traditional IRAs, 401(k)s, and 403(b)s. RMDs generally do not apply to non-qualified annuities, which are funded with after-tax dollars, unless they are specifically structured to avoid annuitization.

Under current federal tax law, the general age for beginning RMDs for many qualified retirement accounts is 73, a change implemented by the SECURE Act 2.0 in 2023. For those born in 1960 or later, the RMD age is scheduled to increase to 75 beginning in 2033. The first RMD must be taken by April 1 of the year following the year the annuitant reaches the RMD age. For all subsequent years, RMDs must be taken by December 31.

The purpose of RMDs is to ensure that funds held in tax-deferred retirement accounts are eventually taxed, as these funds received tax advantages during their accumulation. Failing to take a required minimum distribution can result in a significant penalty. The penalty for not taking an RMD is typically 25% of the amount that was not distributed. This penalty may be reduced to 10% if the oversight is corrected promptly and within a specified timeframe, generally within two years. If a qualified annuity is annuitized, the regular payments may automatically satisfy the RMD requirement for that contract, provided the payment schedule meets IRS guidelines.