Picture a retiree here in Carson City last October. The market is down 20 percent on the year, the quarterly IRA statement is genuinely painful to open — and sitting in the same stack of mail is a reminder that a required minimum distribution has to come out of that IRA by December 31. The IRS does not grant extensions for bad markets. The money has to come out, and for most people that means selling investments at exactly the moment they're worth the least.
I call it the October problem, and if you're within a few years of age 73, it's worth understanding now rather than later. Because there's a quiet IRS rule — the IRA aggregation rule — that lets an annuity with a guaranteed lifetime withdrawal benefit do something most people have never been told it can do: cover its own required distribution and pay a large share of the RMD on a completely separate IRA brokerage account. Same tax bill. Very different source for the cash. And that difference is what protects a portfolio in a down year.
I'm Daniel Faiella, an independent insurance broker in Carson City, and I walk Northern Nevada retirees through this at the kitchen table more often than any other annuity topic. Here's the whole idea, in plain English.
First, a quick RMD refresher
A required minimum distribution — RMD — is the amount the IRS requires you to withdraw each year from pre-tax retirement accounts such as traditional IRAs and 401(k)s, so that the money finally gets taxed. Under current law, RMDs begin at age 73, and under the SECURE 2.0 Act the starting age is scheduled to rise to 75 in 2033.
The math is straightforward: take each account's balance on December 31 of the prior year and divide it by a life-expectancy factor from the IRS Uniform Lifetime Table. At age 73 that factor is 26.5, which works out to roughly 3.8 percent of the balance in the first year. Every dollar comes out as ordinary taxable income, and missing an RMD triggers one of the steeper penalties in the tax code — 25 percent of the shortfall, reducible to 10 percent if you correct it promptly.
None of that is optional. The only thing you actually control is where the cash comes from. Which brings us to the rule that changes the whole picture.
The aggregation rule nobody told you about
Here's the part that surprises people — including people who have owned annuities for years. The IRS calculates your RMD separately for each traditional IRA you own, but it does not force you to take each account's RMD from that account. Under the IRS's IRA aggregation rule, you may add up the RMDs for all of your traditional IRAs and take the combined total from any one of them, or any mix of them, in whatever proportion you like.
One important boundary before we go further: this applies to IRAs only. Workplace plans do not aggregate — each 401(k) you own must pay out its own RMD from its own balance. (That's one reason many retirees roll old 401(k)s into IRAs, though rollovers deserve their own careful conversation.)
Now connect the dots. Suppose part of your IRA money sits inside a fixed annuity with a guaranteed lifetime withdrawal benefit, or GLWB — a rider that pays you a contractually guaranteed income stream for as long as you live, no matter what markets do. Those guaranteed withdrawals are IRA distributions, so they count toward your combined IRA RMD for the year. The annuity's income doesn't just satisfy the annuity's own share — whatever is left over can offset the RMD owed on your separate IRA brokerage account.
Congress reinforced this in SECURE 2.0. Section 204 of the act directs that annuity payments exceeding the annuity's own RMD may be credited against the RMDs of your other aggregated IRAs — cleaning up an older rule that used to wall annuitized contracts off in their own silo. In short: the law is now clearly on the side of counting that guaranteed income across your whole IRA household.
A worked example — hypothetical numbers only
Round, made-up numbers make this concrete. Everything below is hypothetical and for illustration only — real balances, payout rates, and contract terms will differ. The 26.5 divisor comes from the IRS Uniform Lifetime Table for a 73-year-old.
Meet a hypothetical 73-year-old with $700,000 of traditional IRA money split two ways: a $400,000 IRA brokerage account invested in the market, and a $300,000 IRA annuity with a GLWB paying 5 percent — $15,000 a year, guaranteed for life.
| Line item | Balance | Hypothetical RMD math |
|---|---|---|
| IRA brokerage account | $400,000 | $400,000 ÷ 26.5 ≈ $15,094 |
| IRA annuity with GLWB | $300,000 | $300,000 ÷ 26.5 ≈ $11,321 |
| Combined IRA RMD | $700,000 | $700,000 ÷ 26.5 ≈ $26,415 |
| Guaranteed GLWB income | 5% of $300,000 | $15,000 per year, for life |
| Still needed from brokerage IRA | — | $26,415 − $15,000 ≈ $11,415 |
All figures are hypothetical and for illustration only. Actual RMDs depend on your real balances, your age, and the current IRS Uniform Lifetime Table.
Because of the aggregation rule, that $15,000 of guaranteed annuity income counts against the full $26,415 household RMD. It covers the annuity's own $11,321 share entirely and knocks another $3,679 off the brokerage account's share. Our retiree sells roughly $11,400 of investments instead of roughly $26,400 — less than half the forced selling, in the kind of year when selling hurts most.
The rest of the brokerage IRA stays exactly where it is: invested, untouched, and growing tax-deferred until it's actually needed.
Why this matters most in a down market
Retirement researchers call it sequence-of-returns risk: the danger that poor market years early in retirement, combined with forced withdrawals, do permanent damage to a portfolio. Averages don't save you here — order does. Selling $26,000 of stock funds after a 20 percent decline means liquidating shares that would otherwise have participated in the recovery. A 20 percent loss needs a 25 percent gain just to get back to even, and shares you were forced to sell never make that round trip.
Guaranteed annuity income doesn't have that problem. The GLWB payment is the same in a bull market and a bear market — it's a contractual obligation of the insurer, not a market outcome. Sourcing your RMD cash from guaranteed income first, and touching the brokerage IRA as little as possible, leaves the maximum number of shares in place to recover. That's the insulation, and it's why this structure earns its keep precisely in the years that feel the worst.
Every fall I sit down with retirees from Carson City to Reno for exactly this conversation, and the pattern is consistent: the people who sleep through an ugly October are the ones whose RMD is already funded by income that doesn't care what the S&P 500 did.
What this is not — the honest part
I'd be doing you a disservice if I stopped there, so let me be just as clear about the limits.
It is not tax avoidance. Every dollar of the RMD still comes out and is still taxed as ordinary income. This strategy changes the funding source of the withdrawal, not the size of the tax bill. (Related: RMD income can also nudge your Medicare premiums upward through IRMAA surcharges — something I watch closely on the Medicare side of my practice.)
Annuities have real trade-offs. GLWB riders usually carry an annual fee, contracts have surrender-charge periods that limit liquidity in the early years, and payout percentages vary by product, by your age, and by when income begins. An annuity is a tool for one specific job — guaranteed lifetime income — not a default answer for every dollar you have.
Guarantees are only as strong as the insurer. All annuity guarantees are subject to the claims-paying ability of the issuing insurance company. That's exactly why carrier financial strength is one of the first filters I apply when comparing annuities as an independent broker.
This is education, not advice. Whether any of it fits depends on your accounts, your tax picture, and your goals. Before you move a dollar, run it past a qualified tax professional — I mean that literally, not as boilerplate.