A qualified annuity rolls to an IRA — a non-qualified one never can.

An IRA is funded by annual contributions, which are capped and require earned income, and by money arriving from another retirement account as a rollover or a trustee-to-trustee transfer. A non-qualified annuity contract is none of those: its value is personal savings held inside an insurance contract, and no form or election re-characterises it as retirement money. You can surrender it and contribute cash within the annual limit, but that is a contribution — taxed on the gain on the way out — not a rollover of the contract.

§ 3405(c)(1) requires the payor of an eligible rollover distribution to “withhold from such distribution an amount equal to 20 percent of such distribution.” That withholding is not optional and not waivable. § 3405(c)(2) switches it off only where the distributee elects under § 401(a)(31)(A) to have the distribution paid directly to an eligible retirement plan.

Do not read § 72(t) as an employer-plan-only rule. It applies to an amount received from a “qualified retirement plan (as defined in section 4974(c)),” and § 4974(c) includes “an individual retirement account described in section 408(a)” and “an individual retirement annuity described in section 408(b).” Blowing an IRA-to-IRA 60-day rollover under 59½ triggers the same 10 percent. The separate § 72(q) tax applies to non-qualified annuity contracts, and the two are easy to confuse because both are 10 percent.

The catch is that the 60-day rule measures the distribution, not what landed in your hand. § 402(c)(3)(A) denies rollover treatment to any transfer made after the 60th day following receipt, and only the amount actually transferred escapes income under § 402(c)(1). So a shortfall equal to the withholding is a distribution unless you replace it from other savings.

That 20 percent applies to an eligible rollover distribution, a term § 3405(c)(3) takes from § 402(f)(2)(A), which gives it “the same meaning as when used in subsection (c) of this section, paragraph (4) of section 403(a), subparagraph (A) of section 403(b)(8), or subparagraph (A) of section 457(e)(16).” So it reaches 401(k) plans, 403(a) annuity plans, 403(b) tax-sheltered annuities and governmental 457(b) plans alike. What it does not reach is an IRA. The table below is an employer-plan distribution; it does not describe an IRA.

An IRA distribution is withheld under a different subsection, and the rate depends on the shape of the payment rather than the account. § 3405(b)(1) withholds 10 percent from a nonperiodic distribution — a lump sum out of an IRA annuity. § 3405(a)(1) withholds from a periodic payment, meaning “an annuity or similar periodic payment,” at the rate that would apply “if such payment were a payment of wages by an employer to an employee for the appropriate payroll period” — wage-table withholding, not 10 percent. You may elect out of either. Neither is the mandatory 20 percent.

The withheld $20,000 is not lost — § 31(a) credits it against the year’s tax. But it is not available to be rolled over, and it does not come back until you file. Two qualifications on the table: withholding runs on the taxable portion, so a plan holding after-tax basis withholds less than 20 percent of the gross; and § 72(t)(2) carries exceptions — separation from service at 55 or older is a common one on exactly this fact pattern — so the $2,000 is an exposure, not a certainty.

§ 402(c)(3)(A) opens “Except as provided in subparagraphs (B) and (C).” Subparagraph (B) lets the Secretary waive the 60-day requirement “where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.” § 408(d)(3)(I) is the parallel provision for IRAs. Subparagraph (C) is a separate route worth knowing if you left a job owing a plan loan: for a qualified plan loan offset amount the deadline runs to the due date, including extensions, for the return for the year the amount is treated as distributed.

Rev. Proc. 2020-46, which modified and superseded Rev. Proc. 2016-47, supplies a self-certification procedure for an enumerated list of reasons, so for those the route is a written certification given to the receiving custodian rather than a private letter ruling. Two conditions travel with it. The contribution must be made as soon as practicable once the reason no longer prevents it — deemed satisfied within 30 days — so sitting on the money can lose the relief. And a self-certification is not itself an IRS waiver: the Service may examine whether the requirements were met. Being past day 60 is a reason to check the list, not to assume the rollover is either lost or saved.

§ 408(d)(3)(B) withholds rollover treatment where the individual received another such amount “during the 1-year period ending on the day of such receipt.” The point people get wrong is the unit of account. Following Bobrow v. Commissioner, T.C. Memo. 2014-21, the IRS applies the limit by aggregating all of an individual’s IRAs — traditional, Roth, SEP and SIMPLE — and effectively treating them as one IRA. The aggregated approach has applied since January 1, 2015, under Announcements 2014-15 and 2014-32.

Every row that does not count is a row where you never take possession. That is the same conclusion the withholding rule reaches by a different route, which is why the direct route is the answer to two separate problems at once.

§ 402(c)(4)(A) excludes “any distribution which is one of a series of substantially equal periodic payments (not less frequently than annually) made (i) for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and the employee’s designated beneficiary, or (ii) for a specified period of 10 years or more.”

So the question is not only what funded the annuity but what stage it is in. A deferred employer-plan annuity still accumulating can move; one already annuitized over a life or a 10-year-plus period is producing payments that are not rollover-eligible, whatever the owner would prefer. Note the scope: § 402(c)(4) defines the term for employer-plan distributions. § 408(d)(3) contains no equivalent periodic-payment exclusion, so an annuitized IRA annuity is a separate question to put to the carrier and a tax adviser rather than one this provision answers.

§ 402(c)(4)(B) excludes from “eligible rollover distribution” any distribution “to the extent such distribution is required under section 401(a)(9).” The IRA parallel is § 408(d)(3)(E), which disapplies rollover treatment “to any amount to the extent such amount is required to be distributed” under the IRA distribution rules. An RMD is therefore not rollover-eligible as a matter of definition — not a timing rule you can work around by sequencing. Roll one into an IRA by mistake and you have made an excess contribution on top of a distribution you still owe tax on. Our annuity RMD guide covers the mechanics.

If the annuity is still inside its surrender period, the surrender charge and any market value adjustment come out of the value before the money moves. Our guide to annuity surrender charges covers the schedules and waivers.

Decide separately whether to move cash or the contract. Most rollovers liquidate the annuity and move cash, which severs the riders. Some carriers will instead re-register the contract itself as an IRA annuity, keeping the guarantees intact. If the contract carries an income rider whose benefit base has grown past the account value, an old guaranteed minimum rate, or an enhanced death benefit, an in-kind transfer is the option to raise with the carrier before anything is surrendered. Rolling out of a guarantee that is currently in the money is a one-way door.

Receiving a 1099-R does not mean you owe tax. It means a distribution occurred and the return has to show where it went. The complete rules are in IRS Publication 590-A.