The SECURE 2.0 Act helped pave the way for employers to offer workers annuities in their retirement plans. Most recently, Vanguard began offering employees regular payouts within 401(k) plans. An in-plan annuity lets workers allocate some of their retirement savings to an annuity, allowing for a predictable, guaranteed income for the later years in life.

“This new structure isn’t the old-style annuity people grew up hearing about,” says Trevor Houston, CEO at ClearPath Wealth Strategies. “It’s a modern blend, low-cost income layer that builds slowly over time. You keep control of your money, have access to the balance and still have the choice to turn part of the money into lifetime income later if you want to,” he says.

But, it’s not right for everyone. High fees, limited liquidity and flexibility, and the complexity of in-plan annuities might deter some to explore it.

We asked six financial experts the pros and cons of buying an in-plan annuity if it’s offered to you.

“The best potential client for an in-plan annuity in my opinion is someone in their 50s or 60s who wants to turn on income at some point nearing or in retirement,” says Joel Russo, owner and retirement adviser at NJ Retirement Planning.

“You could incorporate an annuity that fulfills your objectives. Some benefits and features allow for a stream of income you can’t outlive, protect your account if a downturn in the market happens, etc. You may be able to capture the growth in the annuity at some point, preserving a new high account value going forward.

A negative might be the access to what type of annuity you can fit inside your 401(k) plan. It might not check all the boxes you wish to accomplish. Another downside might be the fees and terms of an annuity. They might not be a fit due to possible surrender charges or restrictions on how much you can withdraw.

The best potential client for an in-plan annuity in my opinion is someone in their 50s or 60s who wants to turn on income at some point nearing or in retirement. They may also be more concerned with their account value they’ve accumulated and want to play some defense other than fixed income or bonds. An in-plan annuity might potentially let the client remain in the 401(k) through retirement, but it also limits them to just what’s available in the 401(k) plan.”

“Workers who are near retirement, who want options with simplicity and the comfort of steady income can use the annuity as a useful tool,” says Trevor Houston, CEO at ClearPath Wealth Strategies, LLC.

“In my experience, one of the biggest questions people have nearing retirement is how to turn the pile of money they saved into a paycheck to live on. A lot of people worry about this and when you incorporate a built-in annuity inside a 401(k) target date fund, you’re answering that fear directly.

In my opinion, this is just as much a psychological benefit as it is financial. The annuity benefit brings back a piece of what pensions used to provide. Predictability. Stability. A sense of security if the market goes down. And for someone close to retirement, it can help protect them from the pain of bad market timing. If a person retires during a downturn the guaranteed income layer can make a big difference in the long-term outcome.

Now, of course there are tradeoffs too. As more of your balance shifts into the annuity sleeve, you lose a little flexibility. And if you have major health issues or a shorter life expectancy, lifetime income may not be the best fit. And the younger workers typically don’t need the annuity yet either; they need growth and time in the market to build wealth.

So, does an annuity belong in a 401(k)? For the right person, yes, but it should always be a choice and not a requirement. Workers who are near retirement, who want options with simplicity and the comfort of steady income can use the annuity as a useful tool. And sometimes that one choice gives people the confidence they’ve been missing.”

“It’s critical that a participant understands the considerations around cost and liquidity,” says Ronnie Cox, Certified Funds Specialist and investment director at Human Interest Advisors.

“The guaranteed ‘paycheck for life’ that an annuity provides could be attractive for retirees who prioritize certainty above all else, and incorporating this feature within a qualified plan can be a sound component of a diversified spending approach.

That certainty, however, comes at a price. Limited liquidity, high fees, and the complexity of the product structure may deter participation, as participants often find the mechanics too difficult to grasp. In the case of a 401(k) plan, it’s critical that a participant understands the considerations around cost and liquidity. That responsibility ultimately lands on the plan sponsor, through clear communication and education.”

“The complexity of annuities and other newer breeds of income producing investments means that education and solid fiduciary advice will be key,” says Joe Guerin, VP wealth portfolio manager at Johnson Financial Group.

“This re-emergence of annuities and annuity-like products into the investment menus of retirement plans will take a great deal of careful consideration as many plan sponsors and providers have long memories of the high costs, inflexible arrangements and other limitations that annuities often carried in the past.

The complexity of annuities and other newer breeds of income-producing investments means that education and solid fiduciary advice will be key. We will be re-entering a discussion around the value of future promises and steady income versus the flexibility and control of withdrawals or rollovers on demand. Plan sponsors will be well served by choosing plan providers and advisors that offer robust financial planning to their employees to help determine whether and how much of someone’s plan balance should be annuitized. An annuity isn’t just an investment vehicle — it’s an insurance product, and the value of its guarantee lies in the strength of its issuing insurer.”

“It’s not one-size-fits-all,” says Tom Buckingham, chief growth officer at Nassau Financial Group.

“If the goal is lifetime income, then yes, an annuity inside a 401(k) transforms a savings plan into a retirement paycheck. It’s about turning assets into certainty, not just accumulation.

For many, it makes sense. Guaranteed income reduces risk and helps prevent costly behavioral mistakes like overspending or underspending. It’s not one-size-fits-all. If predictable income and peace of mind are priorities, an annuity can be a strong fit. Guidance from a trusted financial professional can help tailor strategies to your goals and avoid costly mistakes.”

“To get the benefits of an annuity, and the potential financial security it can offer, people first need to purchase the annuity ahead of time,” says Megan Yost, SVP of thought leadership and insights at Segal.

“Annuities in the 401(k) would be a good fit for anyone who wants guaranteed income in retirement and peace of mind that they’ll receive a paycheck for life as they age …

… The purpose of a retirement plan should be to provide people with meaningful income after they stop working. Adding annuities to 401(k) plans is one of the ways organizations can help people do this. Annuities help people convert their savings into a paycheck they won’t outlive in retirement, providing people with peace of mind when they’re older and no longer working. To get the benefits of an annuity, and the potential financial security it can offer, people first need to purchase the annuity ahead of time. This could mean using a big chunk of savings — and giving up access to those savings in the short term.”