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Example 2 Carol has a 401(k) retirement plan with her employer. When she ends her employment, she cashes out her 401(k) and rolls the funds into a newly created IRA. Once the IRA is established, the funds are assessed for asset and income availability as an individually owned retirement plan. Example 3 Jane has a 401(k) retirement plan with her employer. When she ends her employment, she cashes out her 401(k) and deposits the funds into her checking account. The funds are assessed for asset availability as part of her checking account as soon as they are deposited into the account and are no longer treated as retirement funds. 16.11.3 Retirement Funds as Income Employer-Sponsored Retirement Plans Regular, periodic payments from an employer-sponsored retirement plan are counted as unearned income in the month received. Example 4 Mike receives $500 per month from his 401(k) retirement fund and deposits the funds into his checking account. The $500 per month is counted as unearned income. Individually Owned Retirement Plans Withdrawals and distributions from individually owned retirement funds (IRAs and Keoghs) are not counted as income. These transactions are considered a conversion from one asset type to another, similar to a withdrawal or transfer from a bank account. Exception: IRA annuities that are currently paying out are treated as annuities rather than retirement funds when evaluating their availability as income (see SECTION 16.12 ANNUITIES). Example 5 Mike regularly withdraws $500 per month from his IRA and deposits the funds into his checking account. The $500 per month is not income. It is an asset in his checking account. This page last updated in Release Number: 26-03 Release Date: 08/12/2026 Effective Date: 05/19/2026 16.12 Annuities 16.12.1 Annuity Introduction and Definitions An annuity is a purchase contract where the purchaser (person funding the annuity) pays a lump sum or makes periodic payments to a bank or insurance company (annuity issuer) in return for an expectation of future payments. The annuitant is the person entitled to the payments. An annuity may include a beneficiary clause under which, if the annuitant dies, the contracting entity converts any funds remaining in the annuity into a lump sum or periodic payments which are paid to a designated remainder beneficiary. Depending on the settlement option of an annuity, payments may continue for a fixed period or for as long as the annuitant or another designated beneficiary lives, creating an ongoing income stream from the previously deposited funds. When an annuity is established, payments may be immediate or deferred. Deferred annuities are established with a funding timeframe, called an accumulation phase. This is a period when deposits are made into the annuity to build up its value. Immediate annuities don’t have an accumulation phase because they are annuitized at the time of purchase. Typically, annuities only have cash surrender value during the accumulation phase. The pay-out phase (annuitization) begins at the time payments start going to the annuitant in accordance with the settlement option. The settlement option specifies the