I have a $100K variable annuity in my IRA: should I withdraw from it first in retirement?

"“This question I haven't considered because I never ever suggest anyone have a variable annuity in their account,” he said. His final recommendation was four words: “Just take the annuity first.” If you hold a similar product, the stakes are real. A variable annuity wrapped inside an IRA can cost you tens of thousands of dollars over a 20-year retirement."

"“The core problem is paying twice for the same benefit. An IRA already shelters investments from annual taxes. A variable annuity's main selling point is also tax deferral. Putting one inside the other is redundant.” Worse, you forfeit a tax advantage you would otherwise have. As McDonald put it: “If you put this money in an ETF without an IRA around it, you would only be paying taxes at your capital gains rate on the growth.”"

"“With the variable annuity, yeah, you got tax deferral, but now every penny that comes out gets taxed as ordinary income. So it's a much higher hit for most people who have a decent portfolio.” Then there is the fee stack. McDonald estimated the all-in drag: “you also have the expenses and mortality charges of the annuity, which could run your expenses up to 3% per year, which is just stupid high.”"

"Here is what 3% annually does to David's $100,000. Assume underlying funds earn 7% gross. After the annuity skim, he keeps 4% net. Over 20 years, $100,000 growing at 7% becomes roughly $387,000. The same $100,000 at 4% net becomes about $219,000. The fee load erases more than $168,000 of growth on a single $100,000 starting balance."

A $100,000 variable annuity held inside a traditional IRA raises a withdrawal-order question at retirement. The recommendation is to take the annuity first. The main issue is paying twice for the same benefit because an IRA already provides tax shelter, while a variable annuity also relies on tax deferral. Placing the annuity inside the IRA makes the annuity’s tax advantage redundant and can remove the benefit of lower capital gains taxation. Withdrawals from the annuity are taxed as ordinary income, creating a higher tax hit for many retirees. Additional annuity charges, including mortality and expenses, can reach around 3% annually, significantly reducing long-term growth and outcomes over 20 years.

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