You may have received the invitation in the mail. A free steak dinner at a nice restaurant, with a talk called something like “4 Costly Retirement Tax Mistakes and How to Avoid Them.” The food is good, the speaker is friendly, and the tax problems he describes are real.
What deserves a closer look is the solution that tends to show up near the end of the evening. Very often, that solution is an annuity.
In this article, I will walk through how these seminars usually frame each tax mistake and how an annuity gets positioned as the fix. Then I will show where that fix can go wrong for you, with real numbers. I will finish with the approaches I use with my own clients.
You should know where I stand before you read further. Qubera Wealth Management is a fee-only firm. I do not earn commissions on any product, including annuities. That shapes my view, and it is fair for you to weigh it.
Why the dinner is free
A dinner for 40 people can cost a few thousand dollars. It pays for itself quickly. A fixed indexed annuity typically pays the person who sells it 4% to 8% of the amount you deposit. On a $250,000 contract with a 6% commission, that is $15,000, paid when the contract is issued. One sale can cover the cost of many dinners.
The commission is not taken out of your deposit on day one. The insurance company pays it. But the company has to earn that money back from you over time. It does this through lower interest credits, caps on how much of the market’s gain you receive, and long surrender periods. A surrender period is the stretch of years when you pay a penalty to take out more than a small amount each year. Fixed and indexed annuities often carry surrender periods of 5 to 10 years, and some run longer.
The two are linked. Contracts with longer surrender periods tend to pay higher commissions, because the insurer has more years to recover what it paid up front. So the longer your money is locked up, the more the seller is usually paid on the day you sign. If the plan works, everyone is happy. If it doesn’t, the commission has already been paid, and the penalties and lost growth fall on you.
The rules are also different. An agent selling an annuity is usually held to a suitability or “best interest” standard under state insurance law. A registered investment adviser owes you a fiduciary duty, which is a stricter standard. Many people at these dinners do not know which one applies to the person at the front of the room.
The four mistakes and the pitch for each
Each of these tax problems is real. I talk about all four with my own clients. The trouble starts when one product is offered as the answer to all of them.
Mistake one: letting your IRA grow too large
The seminar version goes like this. Your IRA and 401(k) are a “tax time bomb.” At age 73, or 75 if you were born in 1960 or later, the IRS forces you to take required minimum distributions (RMDs). Those withdrawals pile on top of Social Security and pensions and push you into a higher bracket.
The pitch is a qualifying longevity annuity contract, or QLAC. For 2026, you can move up to $210,000 per person from your IRA into a QLAC. That money is left out of your RMD math until payments start, which can be as late as age 85.
Here is where it can go wrong for you.
The tax is only delayed. When payments start, every dollar is taxed as ordinary income. Those payments are larger than the RMDs would have been, so the tax bill at 85 is larger too.
The savings in the meantime are small. At 73, the IRS divides your IRA balance by 26.5 to set your RMD. Taking $210,000 out of that math lowers the year’s RMD by about $7,900. In the 24% bracket, that delays about $1,900 of federal tax. To get that, you give up access to $210,000 for up to 12 years.
The bracket you face at 85 may be higher. If one spouse dies first, the survivor files as single. Single brackets are about half as wide as joint brackets. The QLAC income then arrives in a tighter bracket than the couple would have faced together.
The heirs can lose. With a life-only payout, if you die before 85, the money is gone. With a return-of-premium death benefit, a non-spouse heir generally gets a lump sum that is taxable all at once. An inherited IRA, by contrast, can be spread over 10 years.
Inflation keeps working the whole time. Most QLAC payments are fixed. A check that looks large today buys a lot less 12 years from now.
Mistake two: skipping Roth conversions in low-income years
This one is good advice on its own. The years between retirement and the start of RMDs or Social Security are often the lowest-income years of your life. Converting part of your IRA to a Roth during that window can lock in a low tax rate.
The pitch is an indexed annuity with a “bonus” of 5% to 10%. You are told the bonus helps cover the tax cost of the conversion. Sometimes the annuity is placed inside the Roth itself.
Here is where it can go wrong for you.
The bonus is rarely free. Insurers recover it through lower caps, lower participation rates, longer surrender periods, or a bonus that vests over many years. In some contracts, the bonus applies only to an “income account” you can never withdraw as cash.
A Roth already grows tax-free. Putting an annuity inside it adds no tax benefit. You pay for tax deferral you already have.
The Roth is the worst place to cap your growth. It is the account that is never taxed, so it should usually hold your highest-growth investments. An indexed annuity limits your upside in exactly the place where upside matters most.
The tax money can come from the wrong place. If the conversion tax is paid out of the IRA itself, you shrink the amount that gets to grow tax-free. If you later need cash to pay the tax bill or cover an emergency, surrender charges may stand in the way.
Mistake three: paying tax on your Social Security
The seminar points out that up to 85% of your Social Security can be taxed. That happens once your “provisional income” passes $25,000 for single filers or $32,000 for joint filers. Those limits were set decades ago and have never been raised for inflation.
The pitch is a non-qualified annuity, bought with money from your regular brokerage account. Growth inside the annuity is not reported each year, so your provisional income looks lower.
Here is where it can go wrong for you.
You can turn low-taxed income into high-taxed income. In a brokerage account, long-term gains and qualified dividends are taxed at 0%, 15%, or 20%. When that same growth comes out of an annuity, it is taxed as ordinary income, which can run as high as 37%.
The gains come out first. Withdrawals from a deferred annuity are treated as taxable earnings before any of your original money. The taxable income you avoided now shows up later, often in a bigger lump.
Your heirs lose the step-up. Stocks in a brokerage account get a new cost basis when you die, which can erase the capital gains tax. An annuity gets no step-up. Your heirs pay ordinary income tax on every dollar of growth.
The fees add up. Variable annuities can carry mortality and expense charges of 0.5% to 1.5% a year, plus fund expenses, plus riders of 0.25% to 1% each. Stacked together, many contracts cost 2% to 3% a year. That is often more than the tax you were trying to save.
The benefit is often small. Many retirees with meaningful savings already have 85% of their benefits taxed, and will stay there either way. Lowering provisional income by a few thousand dollars may not change the result at all.
Mistake four: setting off the Medicare surcharge
The seminar explains IRMAA, the extra charge on Medicare premiums for higher earners. In 2026, the standard Part B premium is $202.90 a month. Higher earners can pay as much as $689.90. The surcharge starts above $109,000 of income for single filers and $218,000 for joint filers, based on your tax return from two years earlier.
The pitch is that an annuity keeps your income smooth and low, so you stay under the line.
Here is where it can go wrong for you.
IRMAA is a cliff. Going over a threshold by one dollar triggers the full surcharge for that tier. A forced annuity withdrawal, a surrender, or QLAC payments starting at 85 can push you over in a year you didn’t plan for.
The deferred gains still come out someday. Delaying taxable income does not erase it. It moves it to a year when you may have less control.
The surcharge is often smaller than people fear. The first tier adds about $974 a year per person. Paying that for a year or two can be worth it if it lets you complete a Roth conversion that saves far more over your lifetime. Treating IRMAA as a line you must never cross can lead to worse decisions than the surcharge itself.
What the four pitches have in common
Each one trades your flexibility for a modest tax benefit that may or may not show up. Each one adds fees, surrender penalties, or both. And in each case, the person recommending it is usually paid in full at the start, while the risk of it not working sits with you for years.
How a full package can fall apart
To show how these pieces interact, here is a hypothetical couple. Tom and Linda are both 70 and retired. They have $1.6 million in IRAs and $500,000 in a brokerage account. They attend a dinner seminar and leave with a plan built around three contracts.
| What they bought | Amount | Typical commission range | Example commission |
|---|---|---|---|
| QLAC for Tom, life-only payout | $210,000 | 2% to 4% | $6,300 at 3% |
| QLAC for Linda, return of premium | $210,000 | 2% to 4% | $6,300 at 3% |
| Indexed annuity from brokerage money, 10-year surrender | $300,000 | 4% to 8% | $18,000 at 6% |
| Total | $720,000 | $30,600 |
The seller in this example earns about $30,600 when the contracts are issued. Tom and Linda’s results depend on what happens over the next 15 years.
For the first several years, the plan looks fine. Their RMDs are a little lower, and the brokerage growth inside the annuity no longer shows up on their tax return.
At 77, Tom dies. His QLAC was set up as life-only, because that option paid the highest future income. He never reached 85, so his $210,000 is gone. Linda now files as a single taxpayer, with brackets about half as wide as before.
At 79, Linda needs $150,000 for home care. Her QLAC cannot be touched until it starts paying. The indexed annuity is still inside its surrender period, so she pays a penalty to take out more than the free amount. The gains come out first and are taxed as ordinary income. That one withdrawal pushes her over the single IRMAA threshold, so her Medicare premiums jump two years later.
At 84, Linda dies, one year before her QLAC was set to begin. Her children receive the $210,000 return-of-premium benefit as a lump sum. It is all taxable in one year, on top of their own peak earnings. They also inherit the indexed annuity. Because annuities get no step-up in basis, every dollar of growth is taxed to them as ordinary income.
Now compare a plan with no annuities. Tom and Linda could have converted part of their IRAs to Roth accounts in their early 70s, at known tax rates. They could have kept the brokerage account in low-cost funds. Linda would have had full access to her money when she needed care. Her children would have inherited Roth money they can withdraw tax-free, and brokerage holdings with a stepped-up cost basis that largely wipes out the capital gains tax.
Not every annuity story ends this way. If Tom and Linda had both lived to 95, the QLACs would have paid out much more. That is the honest trade. A QLAC is a bet on a long life, and the tax savings are a small side benefit. When it is sold mainly as a tax strategy, the buyer often takes on the risk without understanding it.
When an annuity can make sense
I am not against annuities. They are insurance, and insurance has a place. The best reason to buy one is to protect against a risk, such as running out of money in a long life. A tax pitch alone is a weak reason.
A few cases where an annuity can fit well:
- A simple income annuity can cover basic bills when Social Security and pensions fall short, for someone who values a steady check over flexibility.
- A multi-year guaranteed annuity can work like a CD with tax deferral, for a retiree who wants a fixed rate for three to five years. Commissions on these are usually low.
- A QLAC can serve as longevity insurance for someone with good health, a family history of long lives, and enough other savings to stay flexible.
- Fee-based annuities with no commission and short or no surrender periods are now available, and they remove much of the conflict described above.
In each case, the annuity is chosen for the protection it gives, and any tax effect is a secondary detail.
Better ways to solve each problem
The four tax problems above are real, and most of them can be handled without locking up your money. These are the tools I use most often with clients.
Start with a multi-year tax map
Before buying anything, project your income and tax bracket for each year from now through your late 80s. Include the year RMDs begin, the year each of you claims Social Security, and the years a surviving spouse would file as single. This map shows which years are cheap to pull income from and which are expensive. Every decision below follows from it.
Convert to Roth in the low-income years
Use the gap between retirement and RMDs to convert part of your IRA to a Roth each year. A common approach is to fill up to the top of the 22% or 24% bracket. Pay the conversion tax from your brokerage account, so the full converted amount keeps growing tax-free. This shrinks future RMDs directly, which a QLAC only does for a while. It also protects a surviving spouse from the single-filer squeeze, and it leaves your children tax-free money instead of a deferred tax bill.
Delay Social Security
Waiting to claim until 70 raises your benefit by about 8% for each year past full retirement age. That benefit is adjusted for inflation and backed by the federal government. For most people, it is the best lifetime income product available, and it pays no commission to anyone. The years you wait are also ideal for Roth conversions, since your income is low.
Give from your IRA if you give to charity
Starting at age 70½, you can send money straight from your IRA to a charity through a qualified charitable distribution. It counts toward your RMD but never shows up in your income. That lowers the income used for Social Security taxation and for IRMAA at the same time.
Put each investment in the right account
Hold bonds and other income-heavy investments in your IRA, where the income is tax-deferred. Hold stocks in your Roth and brokerage accounts. Stocks in a brokerage account get lower tax rates on gains and a step-up in basis when you die. Harvest losses in the brokerage account when markets fall. This approach gives you most of the tax control an annuity promises, with full access to your money and much lower costs.
Plan around IRMAA instead of fearing it
Choose which accounts to draw from each year so you stay under a threshold when it is cheap to do so. When a Roth conversion is worth more than the surcharge, go over on purpose. If your income drops because you retired, you can ask Social Security to use a more recent year’s income through Form SSA-44.
If you want guaranteed income, buy it plainly
If a steady check would help you sleep at night, compare a simple income annuity against delaying Social Security. A plain income annuity has a clear payout, low commissions, and no complex riders. You can see exactly what you are buying.
Questions to ask before you sign
If you are offered an annuity after a seminar, ask these questions and get the answers in writing.
- How much will you be paid if I buy this, and when?
- How long is the surrender period, and what is the penalty in each year?
- What happens to my money if I die in year three? Who gets it, and how is it taxed?
- Is the bonus added to the cash I can withdraw, or only to an income account?
- What are the cap and participation rate, and can the insurer change them after I buy?
- What is the total yearly cost, including every rider?
- Are you acting as a fiduciary on this recommendation?
- What would my plan look like if I did nothing and used Roth conversions instead?
A good recommendation holds up under all eight. If the answers are vague, or the pressure to sign quickly goes up, give yourself time to think it over.
Retirement tax planning works best when it is done slowly, one year at a time, with a clear map. A steak dinner is a fine way to spend an evening, but it is a poor place to make a decision that locks up your money for a decade.
Frequently asked questions
If a QLAC lowers my RMDs, why isn’t that a tax savings?
A QLAC moves the tax to a later year. Once payments begin, as late as age 85, every dollar is taxed as ordinary income, and the payments are larger than the RMDs would have been. You save money only if your tax rate at 85 is lower than it is today. For a surviving spouse filing single, it is often higher.
What happens to my QLAC if I die before payments start?
It depends on the option you chose. With a life-only payout, the money is gone and nothing passes to your family. With a return-of-premium benefit, your heirs receive what you paid in, usually as a lump sum that is fully taxable in one year. A spouse can often continue the contract instead.
The seminar said an annuity bonus would pay my Roth conversion tax. Is that true?
The bonus does not pay your tax bill. You still owe the full tax on the conversion, from your own money. Insurers recover the cost of the bonus through lower caps, longer surrender periods, or a bonus that vests over time. Some bonuses only apply to an income account you can never take out as cash.
Should I put an annuity inside my Roth IRA?
In most cases, no. A Roth already grows tax-free, so the annuity’s tax deferral adds nothing you don’t already have. You would pay fees and accept caps on growth in the one account that is never taxed. That account is usually the best home for your highest-growth investments.
Will moving my brokerage money into an annuity stop my Social Security from being taxed?
It may lower your taxable income for a while, but it often costs more than it saves. Growth that would have been taxed at 0% or 15% as capital gains will later be taxed at ordinary income rates. Many retirees with solid savings will have 85% of their benefits taxed either way.
Is it ever worth going over an IRMAA threshold?
Yes, sometimes. The first IRMAA tier adds about $974 a year per person in 2026. If crossing that line for a year lets you finish a Roth conversion that saves tens of thousands in future taxes, the surcharge is a small price. The goal is the lowest tax bill over your lifetime.
Do my children pay tax on an annuity I leave them?
Yes. Annuities do not get a step-up in basis at death, so your heirs pay ordinary income tax on all the growth. Stocks in a regular brokerage account do get a step-up, which can erase the capital gains tax. Roth accounts pass to heirs tax-free.
How do I find out what the seller earned on my annuity?
Ask directly, and ask for the dollar amount in writing. Many states require agents to tell you how they are paid. For a variable annuity, the prospectus lists the costs. If the answer is vague or you are told there is no commission, treat that as a reason to slow down.
I already own an annuity that is still in its surrender period. Should I cancel it?
Not automatically. Compare the surrender charge with what staying in the contract costs you each year. Most contracts let you take out about 10% a year with no penalty. In some cases, a tax-free 1035 exchange into a lower-cost contract makes sense. Often the best move is to plan around the date the surrender period ends.
Get a second opinion before you sign
If you came home from one of these dinners with a proposal in hand, or you already own an annuity and are not sure it still makes sense, I would be glad to look at it with you. Send me the illustration or your most recent contract statement. I will tell you in plain English what you are paying, what the surrender schedule looks like, how the money would be taxed for you and your heirs, and how it compares with the approaches in this article.
There is no cost and no obligation for this review. I do not sell annuities or earn commissions, so I have nothing to gain from whether you buy, keep, or cancel a contract. If it turns out the annuity fits your goals, I will say so.
The review matters most if you recently lost a spouse, are within a few years of RMDs, or were told an offer is only good for a limited time. Those are the moments when a decision is easiest to rush and hardest to undo.
To get started, schedule a call with me at QuberaWealth.com. You can also reply to this email if you are reading it in my newsletter.
Keep calm and invest,
Nirav
This article is for educational purposes only and is not individualized investment, tax, or legal advice. The couple described is hypothetical, and the figures are illustrations, not projections of any actual result. Annuity features, fees, commissions, and guarantees vary by contract and depend on the claims-paying ability of the issuing insurer. Tax figures reflect 2026 federal limits and may change. Qubera Wealth Management is a fee-only registered investment adviser and does not receive commissions from the sale of annuities or other insurance products.
Sources
- 2026 inflation-adjusted limits, including the QLAC limit (WTW, citing IRS Notice 2025-67)
- 2026 Medicare IRMAA brackets and Part B premiums (Federal Pension Advisors)
- IRMAA brackets 2026, first-tier cost example (Country Tax Calc)
- Annuity fees and commissions (My Annuity Store)
- How much does an annuity cost (Bankrate)
- Annuity fees and commissions (Annuity.org)
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