Orman Rejects $87,000 Annuity-to-Roth Move for Elderly Mother

A $6,000 surrender charge would consume roughly two years of income for a 78-year-old Boston woman, the central reason Suze Orman advised her family not to move an $87,000 annuity into a Roth IRA at Fidelity.

The annuity pays the woman $250 a month and is scheduled to expire in 2028, according to the question discussed on Orman’s Women & Money podcast. She also lives in income-based senior housing, turning what might look like a routine retirement-account decision into a potentially expensive benefits calculation.

Orman’s objection was blunt. Paying the fee would immediately shrink the account to about $81,000, while the existing contract would continue producing income for less than two years before reaching its scheduled endpoint. In her view, the family would be paying to discard a guaranteed payment stream that was already close to running its course.

The housing issue is more consequential. A monthly annuity payment may fit predictably into an annual income review. A large surrender or conversion transaction, by contrast, could produce a sharp jump in reportable income during the year it occurs, potentially affecting rent calculations or eligibility under the specific housing program. The exact treatment depends on the program and the annuity’s tax status, so the family should get the answer in writing from its housing administrator before acting.

There is also a tax distinction that often gets lost in the phrase “move it to a Roth.” A Roth conversion is generally taxable in the year of conversion to the extent the transferred money is pre-tax. The Internal Revenue Service says annuity surrender proceeds can also contain taxable earnings, although the taxable amount depends on whether the contract is qualified and how much after-tax basis it contains.

That means the transaction could combine three costs: the insurer’s surrender penalty, an income-tax bill and higher housing costs. The future benefit would be tax-free Roth withdrawals and no lifetime required minimum distributions for the original owner, but at age 78, the time available to recoup those costs is limited.

Orman also questioned why an adviser would recommend replacing a nearly matured contract. She suggested the remaining balance could create a new sales commission, though that allegation would need to be tested against the adviser’s compensation disclosures.

The practical lesson is narrower than “annuities are good” or “Roths are bad.” Before surrendering any contract, compare the fee with the income remaining, identify the taxable portion and check whether the recommendation creates a compensation conflict. In this case, waiting may be the strategy with the fewest moving parts.