Explainer
Can you convert an annuity to a Roth IRA?
By Secure Retirement PlannerUpdated
If your annuity is in a traditional IRA or a work plan like a 403(b), you can convert it to a Roth in 2026. You owe income tax on the contract's fair market value on the day you convert. That can be higher than the account value on your statement if your contract has riders.
If you bought your annuity with after-tax money outside any retirement account, it is a non-qualified annuity. You can't convert it to a Roth. Your only path into a Roth is to take money out, pay any tax due, and make a regular Roth contribution if you qualify.
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The short version
- You can convert an annuity to a Roth only if it is inside an IRA or retirement plan.
- You are taxed on the fair market value. That can include the value of an income rider, death benefit or bonus.
- Before you convert, ask the insurer for the fair market value in writing. It goes on Form 1099-R.
- Surrender charges generally don't lower your taxable value unless you fully cash out the contract.
- You can't convert a non-qualified annuity at all.
Which kinds of annuities can be converted to a Roth?
A qualified annuity is one held inside a tax-advantaged retirement account. You bought it with pre-tax money, so every dollar is taxable when it comes out. You can convert it. The law allows conversions from traditional, SEP and SIMPLE IRAs. It also allows them from employer plans like 401(k)s, 403(b)s and governmental 457(b)s.
A non-qualified annuity is one you bought outside any retirement account, with money you'd already paid tax on. It is not an IRA, so you have nothing to convert. A tax-free exchange (a 1035 exchange) can move it to another non-qualified annuity, but not into a Roth.
| Qualified annuity (in an IRA or plan) | Non-qualified annuity | |
|---|---|---|
| Bought with | Pre-tax money | After-tax money |
| Can be converted to Roth? | Yes | No |
| Tax when converted | Fair market value is taxed as income | Not applicable |
| Tax on withdrawals today | All of it is taxable | Only the earnings are taxable |
| Path into a Roth | Direct conversion | Withdraw, then a regular Roth contribution if eligible |
How is an annuity valued for tax when it's converted?
When you convert an annuity in your IRA, you are taxed on its fair market value that day (Treasury Regulation 1.408A-4, Q&A-14). That's the rule even when you convert only part of the contract.
Your annuity may be deferred, meaning it is not yet paying you income. Then the usual method starts with your account value. It adds the value today of any extra benefits, such as an income rider or a larger death benefit. It also adds back front-end charges taken in the past 12 months. So if your income base is well above your account value, your fair market value can be higher than your statement balance.
The insurer figures this number and reports it to the IRS on Form 1099-R. Ask for the fair market value in writing before you convert. Then run that figure, not your statement balance, through Roth conversion tax calculator.
Questions to ask the insurer
What fair market value will you report if I convert on this date? How much of it comes from riders or a bonus? Can I convert part of the contract, and does that count as a withdrawal? Will the riders carry over to the Roth version?
Does a surrender charge lower the tax on a conversion?
Generally no. The method in the regulation starts with your account value. It does not use the lower amount you'd get after a surrender charge. You may hear a pitch that converting during the surrender period lowers your tax. Under these rules, that usually isn't how it works.
There is one exception. You could fully surrender the annuity for its cash value and move the cash into a Roth IRA. Then the cash is what's taxed. But you pay the surrender charge, and you give up your contract's riders and benefits for good.
Can I convert part of an annuity each year?
Yes. The regulation lets you convert part or all of your IRA annuity. How it happens depends on your insurer. Some can split one contract and re-title part as a Roth. Others treat it as a withdrawal from your IRA annuity that you then move into a Roth IRA.
If it is handled as a withdrawal, it counts against your free-withdrawal amount. That is often about 10% of the account value a year. Anything above that can owe a surrender charge. Spreading your conversions over several years also helps keep each year's tax in a lower bracket. See How much to convert each year.
Should you convert an annuity, or leave it in the IRA?
You convert an annuity for the same reasons as any conversion. You may expect a higher tax rate later. You may want to cut your future RMDs (required minimum distributions), the yearly withdrawals the IRS requires. Or you may want to leave tax-free money to your heirs. The annuity itself doesn't change that math.
It may not make sense for you if any of these is true. A rich rider may push your taxable value well above what you could ever take as cash. You may have to pay the tax from the annuity itself. Or you may plan to start the income soon and be in a low bracket anyway. Paying the tax from outside savings keeps more of your money growing in the Roth. Also check The 5-year rules before you take money out of your new Roth.
- If you are 73 or older (75 if born 1960 or later), convert only after you take the year's RMD.
- Your 2026 conversion counts toward your 2028 Medicare premiums (IRMAA uses income from two years earlier).
- You can't undo a conversion. Since 2018, recharacterizations aren't allowed.
- If your annuity is a QLAC, it stops being a QLAC once you convert it to a Roth.
Example: an IRA annuity with an income rider
Gail, 68, single, owns a fixed index annuity in her traditional IRA. Her statement shows an account value of $200,000. Her income rider's income base is higher, at $250,000.
Before converting, she asks the insurer for the fair market value. In this example, the insurer says it would report $212,000, because the income rider has value on top of the account. That's $12,000 more taxable income than her statement suggests. At a 22% rate, that difference alone would add about $2,640 in federal tax.
She could convert the whole contract at once. But $212,000 of added income in one year would push much of it into the 24% bracket. In 2026, the 22% bracket for single filers ends at $105,700 of taxable income. Splitting it over several years could cost less in total tax.
If your annuity has an income rider like Gail's, get the insurer's figure before you convert. Your tax bill may be higher than your statement suggests.
| Figure | Amount |
|---|---|
| Account value (statement) | $200,000 |
| Income base (not cash) | $250,000 |
| Fair market value reported (hypothetical) | $212,000 |
| Extra taxable amount from rider | $12,000 |
| Extra federal tax at 22% | about $2,640 |
Hypothetical example. The fair market value is an assumed figure; real values come from the insurer's actuarial calculation and can be higher or lower. Tax figures use a flat 22% on the $12,000 difference and ignore state tax, IRMAA and other effects.
Common questions
Can I convert a non-qualified annuity to a Roth IRA?
No. You can convert only money in a traditional, SEP or SIMPLE IRA or an eligible employer plan. You could withdraw from your non-qualified annuity and make a regular Roth contribution if you have earned income and qualify.
What value is taxed when I convert my IRA annuity?
Your contract's fair market value on the day you convert. For a deferred annuity, that is generally your account value plus the actuarial value of riders and other extra benefits.
Does my income rider transfer to the Roth?
It depends on your insurer. Some can re-title the same contract as a Roth so your rider stays. Others can't, so ask before you convert.
Will I owe surrender charges to convert?
Not if your insurer converts the contract in place. If your conversion is handled as a withdrawal above the free amount, a surrender charge can apply.
Can I convert a 403(b) annuity to a Roth?
Yes. You can roll it to a Roth IRA once you're allowed to take money out of the plan. Or you can do an in-plan Roth conversion if your plan allows it. The taxable amount is added to your income that year.
Who reports the conversion to the IRS?
The insurer reports the distribution on Form 1099-R. You report it on your tax return, and file Form 8606 for the conversion.
Sources
Facts on this page were last checked on November 9, 2026.
- Treasury Regulation 1.408A-4 (Roth IRA conversions), Q&A-1 and Q&A-14 · Who can convert; annuity taxed at fair market value; surrender exception; part or all of an IRA annuity. Read Nov 9, 2026.
- Treasury Regulation 1.401(a)(9)-6, paragraph (m) (entire interest under an annuity contract) · Account value plus actuarial present value of additional benefits, used by the conversion valuation method. Read Nov 9, 2026.
- IRS Publication 590-A, Contributions to IRAs · Conversion rules, Form 8606, regular Roth contribution rules. Read Nov 9, 2026.
- IRS Notice 2025-67 (2026 retirement plan limits) · 2026 IRA limit $7,500, catch-up $1,100. Read Nov 9, 2026.
- FINRA: Annuities · Non-qualified annuities use after-tax dollars; no added tax advantage inside an IRA. Read Nov 9, 2026.
Who wrote this
This guide was written and fact-checked by the Secure Retirement Planner editorial team using IRS, CMS and Social Security sources listed above. We update guides when the law or yearly limits change. How we research.