“C” wrote in this week:

A friend (in Sweden, of all places!) told me they would pay a 17% bonus for my ~$580k traditional IRA + SEP + 401k and then, over the course of 10 years, convert to Roth, keeping income low enough to avoid an IRMAA increase (which becomes a concern at 63; I am currently 60).

As I understand it, my only risk is the opportunity cost of not maximizing market gains. Thanks for any insights you are willing/able to provide!

—

**C, hello!**

Reading what you’ve outlined, my radar detector is rapidly whirring to life, and I’m getting ready to sound a loud, red alert!

### First, let’s define this “lackluster tool” — what is a Fixed Indexed Annuity?

#### What is a Fixed Indexed Annuity (FIA)?

A Fixed Indexed Annuity (FIA) is an insurance product that promises two things:

– **Principal protection:** Your initial investment can’t lose value due to market declines.
– **Some upside potential:** Returns are tied to a market index (like the S&P 500), but only partially.

Here’s how it typically works: The insurance company takes your premium and invests it conservatively (mostly in bonds). They then use some of the interest earned to buy options on a market index. If the index goes up, you get a portion of the gain (through a cap or participation rate). If the index goes down, you earn zero — but you don’t lose money, either.

It sounds nice: no downside, some upside. But I think there are **WAY** more reasons to dislike FIAs.

—

### 1. High, opaque costs

The commissions paid to salespeople are often 6–10% upfront, hidden from the investor. These costs are baked into the product’s internal mechanics, resulting in lower crediting rates and slower growth for the client.

For this FIA that **“C”** is considering, the $580,000 in principal would result in a $30,000–$60,000 commission to the salesperson. That alone should give us pause.

### 2. Complexity and confusion

The jargon behind annuities is complicated: cap rates, participation rates, spreads, reset periods, and surrender charges. The numbers and their interactions are usually more complicated than the jargon!

Every annuity uses its own verbiage in unique ways, combining confusing semantics with actuarial math. It’s nearly impossible for a layperson to fully understand what they’re getting.

Complexity hides fees and limits. I’ve worked with people looking to **“unwind”** these annuities, and I detest how complex they are.

### 3. Limited upside

The fact that an FIA is “market-linked” is a misleading promise. If the market grows 15% and your FIA has a 6% cap, you only see that 6%.

They are sold as “market-linked” to make you think you’re getting a real shot at market growth. But over time, these products lag market growth by a significant margin.

### 4. Liquidity traps

Most FIAs lock your money up for 7 to 10 years. If you want out early, you face heavy surrender penalties.

This inflexibility runs counter to sound, investor-centered financial planning.

### 5. Misaligned incentives

Annuities are often **sold**, not bought or advised. Because of the big commissions, many non-fiduciary salespeople pitch them aggressively to retirees seeking safety, sometimes overstating returns or understating the downsides.

—

### What About “Annuity + Roth Conversion?”

So, looking at “C’s” FIA offer in particular, and the idea of using it as a vehicle for a Roth conversion, I’m reaching my boiling point here.

#### Point 1: The “bonus” isn’t free money

“C” was promised a 17% bonus. It sounds amazing. It’s the headline they use to hook people.

A real 17% bonus would result in actual money in your account. But this bonus is **not** cash in your account. It’s a contract value credit that only applies to income calculations after the 10-year holding period, not to the actual account you can walk away with.

The “17% bonus” is offset by:

– Lower caps on returns (your “indexed” growth potential gets throttled)
– Longer surrender periods (10+ years is common)
– Reduced liquidity (you can’t easily access your money without penalties)

The bonus is marketing sugar, not actual juice.

#### Point 2: The “10-year Roth conversion plan” sounds smart, but it’s structured to benefit the annuity company, not you.

A gradual Roth conversion can be smart, spreading tax payments over time to avoid jumping tax brackets or triggering IRMAA.

But an FIA isn’t needed to do that. You can hold your investments in a simple, low-cost IRA and still control the pace of Roth conversions each year.

What the company is really doing is locking your funds into their product. THAT IS WHY THEY SUGGEST THE 10-YEAR TIMELINE!

It’s a trap!

– It pays the agent a very large commission.
– It keeps you from easily changing course once you realize how limiting the contract is.

#### Point 3: “Only risk is opportunity cost” — That’s the sales line.

But it’s misleading. Your real risks include:

– **Liquidity risk:** You can’t access your money freely.
– **Complexity risk:** You may not understand how the product (e.g., index crediting) works until it’s too late.
– **Return risk:** FIA returns often lag simple portfolios (e.g., 60/40 indexing) by several percentage points per year.
– **Inflation risk:** Returns may not keep up with the rising cost of living.

#### Point 4: The Roth angle is a smokescreen

The sales pitch uses “Roth conversions” to sound like they’re doing careful tax planning. But the FIA company isn’t optimizing your taxes — they’re selling a contract.

A true tax planner could help you do the same Roth conversions without all the added costs or restrictions.

—

### Bottom Line

You can absolutely do a 10-year Roth conversion strategy. You just don’t need a Fixed Indexed Annuity to do it, and adding one often makes things **worse**, not better.

Annuities are sold. They aren’t bought.

For some people, that dinner you attended might have been the most expensive free dinner of their lives.

I know this sounds like scary fearmongering, and I apologize for that. But it would be scarier if you said **“yes.”**

Thank you for reading!

—

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https://bestinterest.blog/about-that-free-steak-dinner/