Can you use 401(k) money to buy an annuity?

Yes. You can use 401(k) funds to purchase an annuity in two ways: (1) roll the 401(k) balance into an IRA and purchase any annuity from there; or (2) if your plan offers in-plan annuity options, purchase a qualified annuity directly within your 401(k). The SECURE Act of 2019 created a fiduciary safe harbor for plan sponsors who add annuity options, making in-plan annuities more common.

What is a QLAC in a 401(k)?

A Qualified Longevity Annuity Contract (QLAC) is a deferred income annuity purchased within a 401(k) or IRA. In 2026, you can invest up to $200,000 (indexed to inflation) from your qualified accounts into a QLAC. The key benefit: the QLAC premium is excluded from RMD calculations until income begins, which can be deferred to as late as age 85. QLACs are the cheapest way to insure against extreme longevity.

Do I have to take RMDs on a QLAC?

No — the amount invested in a QLAC is excluded from RMD calculations until income begins. For example, if you have a $700,000 IRA and invest $200,000 in a QLAC, only the remaining $500,000 is subject to RMDs until your QLAC income starts (no later than age 85). Once income begins from the QLAC, those distributions count as RMD satisfaction for that portion.

What did the SECURE Act do for annuities in 401(k) plans?

The SECURE Act of 2019 created a fiduciary safe harbor for 401(k) plan sponsors who include annuity options in their plan. Previously, employers feared liability if an annuity provider failed after they selected it. The safe harbor reduced this risk, leading more employers to add in-plan annuity options. SECURE 2.0 (2022) further expanded QLAC limits from $135,000 to $200,000 and eliminated the 25% of account balance cap.

401(k) Annuity Options: QLACs, In-Plan Annuities & SECURE Act Rules (2026)

Annuities and 401(k) plans were historically separate: you saved in the 401(k), then purchased an annuity at retirement with the proceeds. That is changing. The SECURE Act and SECURE 2.0 made it easier for employers to add lifetime income options inside 401(k) plans, and QLACs allow you to use qualified account funds to hedge longevity risk directly.

Option 1: QLAC — Deferred Income Inside Your IRA or 401(k)

A Qualified Longevity Annuity Contract (QLAC) is the most important annuity tool inside qualified retirement accounts.

How it works:

Purchase a QLAC with up to $200,000 from your IRA(s) or 401(k) (combined across all accounts; 2026 limit, indexed to inflation)
QLAC premium is excluded from RMD calculations until income begins
Income can be deferred to any date up to age 85
When income begins, payments last for life

QLAC example:

Age 65: Invest $150,000 from a $600,000 IRA into a QLAC
RMDs calculated on: $450,000 only (not $600,000) — smaller annual RMDs
At 85: QLAC begins paying approximately $2,500–$3,500+/month (male) for life
Result: lower RMDs for 20 years + guaranteed income when most vulnerable to outliving assets

SECURE 2.0 changes (effective 2023):

QLAC limit raised from $135,000 to $200,000 (indexed to inflation going forward)
25% of account balance cap eliminated — you can put up to $200,000 even if it exceeds 25% of your IRA

Option 2: In-Plan Annuity Options

Some 401(k) plans now offer annuity options directly within the plan menu. These typically appear as a mutual fund alternative that is actually an annuity wrapper.

Common in-plan annuity structures:

Deferred income annuity: portion of contributions or balance converted to guaranteed income starting at retirement
Guaranteed income fund: pooled investment fund with guaranteed withdrawal rate (GLWB-like structure)
Annuitization option at retirement: employer gives you the option to convert your 401(k) balance into a lifetime income stream at retirement rather than taking a lump sum

Advantages of in-plan annuities:

Plan sponsor oversight: fiduciary duty of employer reduces risk of unsuitable products
Institutional pricing: group purchasing power often means lower fees than retail annuities
Portability (sometimes): SECURE Act includes rules for taking in-plan annuities with you if you leave the employer

Disadvantages:

Limited insurer options (employer selects)
May not match your specific income needs
Portability is not guaranteed in all plans

Option 3: Rollover to IRA, Then Purchase Annuity

The most flexible approach:

At retirement, roll 401(k) balance to a traditional IRA (tax-free direct rollover)
From the IRA, purchase any annuity from any insurer (SPIA, MYGA, DIA, QLAC)
Maximum flexibility in selecting product, insurer, and terms

Best for: Retirees who want to shop the open market and are not limited to the employer’s plan menu.

Tax treatment: Same as qualified annuity — 100% of distributions taxable as ordinary income (no cost basis exclusion since original contributions were pre-tax).

QLAC vs Rolling Over and Buying a SPIA

	QLAC (income at 85)	SPIA now (income at 65)
$100,000 premium	~$2,000–$3,000/month at 85	~$670/month starting now
RMD impact	Reduces RMDs until 85	No RMD impact (annuitized)
Best use	Longevity hedge	Replace income now
Access to principal	None	None
Who benefits	Those concerned about age 85+	Those who need income now

The 401(k) Annuity Decision Framework

Still working? — Keep 401(k) invested; explore QLAC if within 10 years of retirement
Just retired with no pension? — Rollover to IRA, purchase SPIA with 20–30% of balance for income floor
Have a pension + Social Security? — Annuity may not be necessary; keep 401(k) invested
Worried about longevity (family lives to 90+)? — QLAC is a low-cost longevity hedge

Rolling 401(k) funds into an annuity is a strategy covered in the annuities hub. Compare annuities against keeping funds in a 401(k) with annuity vs. 401(k), and explore your 401(k) options at the 401(k) hub.

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.

The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy