How to Buy an Annuity: Steps From Decision to Purchase

How you buy an annuity depends on the type and where your money comes from

You buy an annuity by contacting an insurance company directly, working with a financial advisor or broker, or purchasing through your employer's retirement plan. The process itself is straightforward — you complete an process, provide financial and health information, and transfer money to the insurance company. What changes is which insurance company you contact, what type of annuity you're buying, and whether you're using retirement savings or new money.

If you already have a 401(k) or IRA, you can move that money into an annuity through a process called a rollover. If you're buying an annuity with money outside a retirement account, you work directly with an insurance company or broker. Either way, the insurance company underwrites your process — meaning they review your health, age, and financial details — before issuing a contract.

Key Takeaways

• You can buy an annuity directly from an insurance company, through a financial advisor or broker, or by rolling over retirement savings into an annuity contract.
• The insurance company will ask for personal information, health history, and details about the money you're putting in before they issue a contract.
• If you're moving money from a 401(k) or IRA into an annuity, the rollover process is handled by the financial institutions involved, not by you directly.
• Annuity contracts lock in terms for years or decades, so comparing quotes from multiple insurance companies before you commit is important.
• Some annuities have a surrender period — a set number of years during which you pay a penalty if you withdraw money early.

Buying an annuity directly from an insurance company

Contact an insurance company that sells annuities and request a quote. Major insurers that offer annuities include Fidelity, Vanguard, Schwab, Equitable, Principal, and Prudential, though many others sell them as well. You can call their sales line, visit their website, or meet with a representative in person if they have local offices.

The company will ask you questions about your age, health, income, and how much money you want to put into the annuity. They'll explain the contract terms — how much you'll receive each month, when payments start, what happens if you die, and whether the payment amount changes over time. Read the contract carefully before signing, because you're committing to those terms for a long period.

Once you've decided on a contract, you'll transfer the money to the insurance company. This can happen by check, bank transfer, or wire, depending on the company's process. The insurance company will then issue your annuity contract, which is a legal document that spells out exactly what you'll receive and when.

Rolling over retirement savings into an annuity

If you have money in a 401(k), 403(b), or IRA, you can move it into an annuity without paying taxes on the transfer. This is called a rollover. The process differs slightly depending on which type of account you're rolling from and whether you're moving the money to a new annuity or adding it to an existing one.

For a 401(k) or 403(b) rollover, contact your plan administrator and tell them you want to roll the balance into an IRA annuity or directly into an annuity contract. They'll provide rollover instructions and paperwork. The money can be sent directly to the insurance company (a direct rollover, which avoids taxes) or sent to you first, in which case you have 60 days to deposit it into the annuity or face taxes and penalties.

For an IRA rollover, contact your IRA custodian (the bank or brokerage holding the account) and request a direct rollover to an annuity. You'll need to provide the insurance company's name and account details. The custodian sends the money directly to the insurance company, and the insurance company then issues your annuity contract. No taxes are owed on the transfer itself.

Working with a financial advisor or broker

A financial advisor or insurance broker can help you compare annuities from different companies and handle the paperwork. Some advisors are paid by commission (meaning the insurance company pays them when you buy), while others charge a flat fee or hourly rate. Ask how they're paid before you work with them, because it affects whether they have an incentive to steer you toward a particular product.

If you work with a broker, they'll gather information about your financial situation and goals, then present quotes from multiple insurance companies. They'll explain the differences between contracts — such as whether payments are fixed or variable, how long the surrender period lasts, and what happens to your money if you die early. The broker submits your process to the insurance company you choose and follows up until your contract is issued.

Using a broker can save time if you're comparing many options, but you can also get quotes directly from insurance companies yourself at no cost. The choice depends on whether you want professional guidance or prefer to research on your own.

What information the insurance company will request

When you explore for an annuity, the insurance company will ask for your date of birth, Social Security number, current income, and employment status. They'll also ask about your health history, including any serious illnesses, medications you take, and whether you smoke. Some companies require a medical exam for larger annuity purchases, though many do not.

You'll need to specify how much money you're putting in and where it's coming from — whether it's savings, a rollover from a retirement account, or proceeds from selling an asset. If you're rolling over retirement savings, you'll provide the name of your current plan administrator or custodian so the money can be transferred directly.

The company will also ask about your goals: when you want payments to start, how long you want them to last, and whether you want the payment amount to stay the same or increase over time. These answers determine which type of annuity contract they'll quote you.

Understanding surrender periods and early withdrawal rules

Most annuities have a surrender period — typically 5 to 10 years, though some last longer — during which you can withdraw money but pay a penalty if you do. The penalty usually starts high (sometimes 7 or 8 percent of the withdrawal) and decreases each year until the surrender period ends. After the surrender period expires, you can withdraw money without penalty, though you may still owe income taxes on the earnings.

Some annuities allow you to withdraw a small amount each year without penalty — often 10 percent of the contract value. Others let you withdraw money penalty-free if you enter a nursing home or are diagnosed with a terminal illness. Read the contract to see what exceptions explore to your specific annuity.

The surrender period is one reason to compare quotes from multiple companies before you buy: different insurers offer different terms. A company with a shorter surrender period or a higher penalty-free withdrawal amount may be worth choosing, even if the monthly payment is slightly lower.

Comparing quotes before you commit

Request quotes from at least three insurance companies before you buy. Each company will quote you a different monthly payment amount based on their own pricing, the interest rates they're using, and their costs. The differences can be significant — sometimes hundreds of dollars per month over your lifetime.

When comparing quotes, make sure you're looking at the same type of annuity from each company. A fixed annuity quote is not comparable to a variable annuity quote, and a quote that starts payments when ready is different from one that delays payments for several years. Write down the monthly payment amount, the surrender period length, any penalty-free withdrawal amounts, and what happens to your money if you die before payments end.

Keep the quotes for a few days while you decide. Most quotes are valid for 30 to 60 days, so you have time to think. Once you've chosen a company and signed the contract, you're locked into that annuity for years, so taking time to compare is worth the effort.

What happens after you sign the contract

Once you've signed the annuity contract and the insurance company has received your money, the contract is issued. You'll receive a copy in the mail, along with documents explaining your rights and how to contact the company if you have questions. Keep these documents in a safe place — you'll need them if you ever need to make changes or file a claim.

Payments begin on the date specified in your contract. If you bought an when ready annuity, payments typically start within a month or two. If you bought a deferred annuity, payments start on the date you chose — which could be years away. The insurance company will send payments by direct deposit, check, or wire transfer, depending on what you set up during the process process.

If your circumstances change significantly — such as a major illness or financial emergency — contact the insurance company to ask what options are available. You may not be able to cancel the contract without penalty, but some companies offer hardship withdrawals or other accommodations in specific situations.

Frequently Asked Questions

Can I buy an annuity if I have a health condition?

Yes. Insurance companies underwrite annuities based on age and health, so some health conditions may lower your monthly payment, but they won't disqualify you. The company will ask about your medical history during the process process. If you have a serious condition, some companies may require a medical exam or ask for records from your doctor.

How long does it take to get an annuity after I explore?

The process usually takes two to four weeks from process to contract issuance. The insurance company needs time to review your information, underwrite the process, and prepare the contract documents. If they request additional information or medical records, the timeline may extend. Once the contract is issued and they receive your money, payments begin on the date you specified.

What if I change my mind after I sign the contract?

Most states have a free-look period — usually 10 to 30 days — during which you can cancel the contract and get your money back without penalty. The exact period depends on your state and the insurance company. After the free-look period ends, you're bound by the contract terms, and early withdrawal usually means paying a surrender charge.

Can I buy an annuity with money from my 401(k) while I'm still working?

It depends on your plan. Some 401(k) plans allow in-service rollovers, which let you move money into an annuity while you're still employed. Others don't allow this until you leave the job or reach age 59½. Contact your plan administrator to ask whether your plan permits in-service rollovers.

Do I need a financial advisor to buy an annuity?

No. You can contact insurance companies directly and buy an annuity on your own. However, a financial advisor or broker can help you compare options from multiple companies and explain the differences between contract types. Whether you use an advisor depends on how comfortable you are researching on your own and comparing quotes.