Conversion of Variable Annuity inside a traditional IRA to a Roth IRA
In 2013 I purchased a Jackson National Life Insurance variable annuity for $700,000 inside a traditional IRA;
The cash value of this annuity has gone up in value to $912,667. Two questions…. 1) what would be the best way to convert this variable annuity to a ROTH IRA ?
2) how can I make this conversion in the best tax advantaged way ? I am 67 years old and currently retired. This annuity is currently sitting in a Jackson subaccount consisting of 100% cash. Your thoughts ?
Permalink Submitted by Alan - IRA critic on Sun, 2021-02-14 15:11
It is very likely that tax rates for higher incomes are going to rise either this year or next year. You should get a tax program or hire an accountant to determine how beneficial conversions would be, and if they are crunch the numbers for various conversion amounts, eg all up front this year, or 25% per year over 4 years. Not only your income tax bills but also the effect on the IRMAA medicare surchage which hits 2 years after the year of the increased income. Once you get this worked out, ask Jackson about conversions of the current or a new annuity contract in the amounts that work best for you. If conversions are beneficial at all, they should be completed before RMDs kick in, and also SS if you have not already started benefits. You should have the funds available to pay these conversion taxes outside of retirement accounts. Another option is to transfer the annuity to a typical broker like Schwab, Fidelity or Vanguard where you know you could easily convert in any portion you wished each year, and invest in any number of very low cost funds or etfs. Your annuity should be out of the surrender period by now.