How to Use a Roth Conversion with an Annuity for Tax-Free Retirement Income
Roth IRA conversions are a powerful tax strategy—especially when combined with the stability and guaranteed income of an annuity. By converting pre-tax IRA funds into a Roth IRA and then using those funds to purchase a fixed or indexed annuity, you create a tax-free income stream for life. This combo strategy can reduce your future Required Minimum Distributions (RMDs), limit exposure to rising tax rates, and enhance control over your retirement cash flow.
The timing of a Roth conversion is key. Doing it in lower-income years—such as after retirement but before Social Security or RMDs begin—can help minimize the tax impact. Once the funds are in a Roth, any future growth and withdrawals (after age 59½ and 5 years) are tax-free. If those funds are used to fund an annuity with a lifetime income rider, you now have guaranteed income that’s not only stable, but also tax-free.
This strategy also helps with estate planning. Unlike traditional IRAs, Roth IRAs don’t have lifetime RMDs, and your beneficiaries can receive the funds income-tax-free (depending on distribution rules). That makes Roth-converted annuities an excellent legacy tool as well.
At Diversified Insurance Brokers, we guide clients through strategic Roth conversions and help structure annuities that deliver guaranteed, tax-free income aligned with their long-term retirement goals.
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FAQs: Roth Conversion with an Annuity
Can you convert an annuity to a Roth IRA?
Yes. You can convert a qualified annuity—such as one inside a traditional IRA or 401(k)—to a Roth IRA. The process is similar to any Roth conversion: you pay taxes on the amount converted, and future growth becomes tax-free.
Do I owe taxes when converting an annuity to a Roth?
Yes. Any pretax funds converted to a Roth IRA are treated as taxable income in the year of conversion. Many retirees convert gradually to avoid jumping into higher tax brackets.
Can I convert a non-qualified annuity to a Roth IRA?
No. Only qualified annuities (funded with pretax dollars) are eligible for Roth conversion. Non-qualified annuities cannot be converted, but you can exchange them tax-deferred into other non-qualified annuities through a 1035 exchange.
Does a Roth conversion affect my annuity guarantees?
Typically, no—ifspecial rules of the specific contract allow the transfer. Some carriers require moving the annuity into a Roth IRA-compatible version of the same product. Your income rider values and contract guarantees usually carry over if done properly.
Will converting cause IRMAA or Medicare premium increases?
It can. Roth conversions increase your taxable income for the year, which may raise Medicare Part B and D premiums two years later. Many retirees spread out conversions to manage IRMAA thresholds.
Is there a limit on how much of my annuity I can convert?
No. There are no IRS limits on Roth conversion amounts. However, tax-efficient planning typically involves converting only up to certain tax bracket thresholds each year.
Can I convert an annuity while it’s still in a surrender period?
Sometimes. Some contracts allow penalty-free internal transfers to carry out a Roth conversion, while others may require surrender charges. A review of your contract terms is necessary.
Do Roth annuities still grow tax-deferred?
Yes. Once in a Roth IRA, annuity growth is tax-deferred—and if rules are followed, future withdrawals and income can be tax-free.
Is a Roth conversion better before or after retirement?
Many people convert after retirement but before claiming Social Security or RMDs because their taxable income is lower during this window. This makes conversion more tax-efficient.
Does a Roth conversion reduce future RMDs?
Yes. Roth IRAs do not require RMDs for the original owner. Converting annuity funds reduces future taxable distributions and can help control retirement-tax exposure.
About the Author:
Jason Stolz, CLTC, CRPC, is a senior insurance and retirement professional with more than two decades of real-world experience helping individuals, families, and business owners protect their income, assets, and long-term financial stability. As a long-time partner of the nationally licensed independent agency Diversified Insurance Brokers, Jason provides trusted guidance across multiple specialties—including fixed and indexed annuities, long-term care planning, personal and business disability insurance, life insurance solutions, and short-term health coverage. Diversified Insurance Brokers maintains active contracts with over 100 highly rated insurance carriers, ensuring clients have access to a broad and competitive marketplace.
His practical, education-first approach has earned recognition in publications such as VoyageATL, highlighting his commitment to financial clarity and client-focused planning. Drawing on deep product knowledge and years of hands-on field experience, Jason helps clients evaluate carriers, compare strategies, and build retirement and protection plans that are both secure and cost-efficient.
