Roth conversion, made simple: how we turned a complex annuity puzzle into a clear plan

If you’ve ever tried to plan a Roth conversion while juggling annuities, surrender schedules, Medicare rules, and taxes… you know it can get messy fast. In our latest video, we fed one short prompt into GrantAI and turned a tough case into a step-by-step plan any client can follow. Here’s the same story in plain English - no jargon, just the “why” and the “what to do.”

Quick refresher (in 60 seconds)

What is a Roth conversion? You move money from a pre-tax IRA to a Roth IRA and pay income tax now so future growth and withdrawals can be tax-free (if rules are met). (IRS)
Why do people do it? Roth IRAs don’t require RMDs (required minimum distributions) during the owner’s lifetime - so you keep control of timing and keep taxable income lower later. (IRS)
What’s IRMAA? A Medicare surcharge that kicks in when your income (MAGI) crosses certain thresholds - and it uses a two-year lookback. Translation: a conversion this year can affect Medicare premiums two years from now. (Social Security)
The “five-year rule”: Each conversion starts its own 5-year clock before converted amounts can be withdrawn penalty-free. (This matters for liquidity planning.) (IRS)

The case

A California couple wants to eliminate future RMDs, keep their annuity’s income rider intact, and avoid unpleasant IRMAA surprises. They have a large traditional IRA inside a fixed indexed annuity (with surrender charges still on the clock), an existing Roth IRA, and a taxable account to cover conversion taxes. Our goal: design a conversion ladder that balances tax today, Medicare premiums tomorrow, and income flexibility forever.

What we compared

We ran four paths side-by-side:

No conversion (status quo)
2-year aggressive (fast conversion, higher near-term taxes)
4-year moderate (balanced pace)
6-year IRMAA-safe (stay under the key thresholds each year)

GrantAI showed something most folks miss: the binding constraint isn’t always the tax bracket - it’s often IRMAA. Even if there’s room left in a target bracket (for example, the 22% bracket in current IRS schedules), going over the IRMAA line can raise Medicare costs two years later. That’s why the “right” amount to convert in a given year may be less than your tax bracket would suggest. (If you want to check current brackets, the IRS keeps a simple table here.) (IRS)

The conversion ladder we recommended

We ultimately recommended a multi-year ladder that intentionally stays just under IRMAA during higher-income years, then takes larger bites when earned income drops. In the couple’s situation, that meant small conversions while work income is still high, then much larger conversions when income winds down - accepting a modest Tier 1 IRMAA in the very low-income years if it buys a big step-up in long-term tax savings. (Remember: IRMAA is calculated off your MAGI from two years prior, so timing matters.) (Social Security)

Why this works:

Fewer (or no) RMDs later → lower taxable income in retirement and more control over when cash actually comes out. (IRS)
Better bracket management → we fill “cheaper” brackets today to avoid being pushed into higher brackets later by forced RMDs. (See IRS bracket schedules.) (IRS)
Estate planning friendly → Roth assets grow and pass tax-free to heirs (beneficiaries still follow distribution rules, but withdrawals are generally tax-free). (IRS)

“Does the annuity blow this up?” (Good question.)

Annuities add two practical issues: surrender charges/MVA (market value adjustment) and rider preservation. Many fixed indexed annuity contracts let you do an in-contract IRA→Roth conversion - which can preserve riders and avoid surrender/MVA because the money never leaves the policy. But it’s carrier- and product-specific. Always confirm in writing what your exact contract allows.

If in-contract conversion isn’t supported, you still have options. One common path is to do trustee-to-trustee movement and structure conversions carefully (or use annual free-withdrawal features if your contract allows) so you minimize penalties and paperwork. The IRS explains the mechanics of trustee-to-trustee transfers here. (IRS)

“When does a Roth conversion actually ‘win’?”

GrantAI runs a simple breakeven test: it compares the up-front tax cost of converting against the taxes you’d avoid on future RMDs. We modeled three growth assumptions - 3%, 4.5%, and 6% - to see how sensitive the outcome is:

At lower returns or shorter time horizons, a partial conversion can be the prudent play.
At base/strong returns and a long horizon (planning to age 90+), a full conversion often comes out ahead because you eliminate RMDs entirely and let more money grow tax-free.

That kind of “what-if” is hard to do by hand. GrantAI pulls it together in seconds and shows how the recommendation changes when you nudge the assumptions.

Action steps we like to see in client files

Carrier verification: get a yes/no in writing on in-contract IRA→Roth and whether surrender/MVA applies to conversions.
Tax-payment plan: line up quarterly estimates so you’re not using IRA dollars to pay the tax bill.
Five-year clocks: track each year’s conversion separately so you know when converted dollars are penalty-free to access. (IRS)
IRMAA calendar: remember the two-year lookback when you plan larger conversions. (Social Security)

Bottom line

A well-timed Roth conversion can trade taxes today for freedom tomorrow - no forced RMDs, more control over income, and a cleaner handoff to heirs. The trick is coordinating brackets, IRMAA, annuity contract rules, and cash flow so the plan works in the real world.

That’s exactly what GrantAI does: you type a plain-English prompt (“stay in our target bracket, avoid IRMAA, show the ladder with taxes and funding”), and it produces a client-ready plan - tables, timelines, and next steps included. Then it drafts the explainer email and one-pager so you can hit send.

Ready to build your own Roth conversion plan? Try GrantAI with a free 14-day trial and turn complex cases into clear, confident decisions - fast.

Disclosures: Educational information only, not tax or legal advice. Confirm current rules with the IRS/SSA and your annuity carrier’s contract terms before acting. See IRS resources on Roth IRAs (Pub 590-B) and RMDs, and SSA guidance on IRMAA for current details. (IRS)