How do I know if my annuity is "bad"?

Look for four flags: surrender charges you were never clearly told about, rider fees (income/death benefit riders often cost 1–1.5%+ per year) quietly offsetting your growth, a teaser cap or participation rate that reset far lower after year one, and an income rider you’re paying for but will never actually turn on. None of these mean annuities are bad — they mean this one may be badly designed for you.

What is a 1035 exchange and when does it make sense?

IRC §1035 lets you move a non-qualified annuity into a different annuity without triggering taxes on the gains. It makes sense when your current contract has high fees, weak caps, or riders you don’t use — and a modern contract offers materially better terms. It does NOT make sense just to restart a commission clock: the math has to clear the remaining surrender charge, and we’ll show you that math before recommending anything.

Should I just surrender and pay the charge to get out?

Sometimes — but it’s a math question, not an emotion question. If the surrender charge is in its final years and small, waiting often wins. If the contract’s fee drag is bigger than the remaining charge, exiting can win. And for qualified annuities, a staged Roth conversion timed against the surrender schedule can beat both. This is exactly what a review calculates.

Does reviewing my annuity mean CentraLife will tell me to dump it?

No — and sometimes the answer is genuinely "keep it." Older contracts can carry guaranteed rates and income benefits that no longer exist in today’s market and should never be surrendered. CentraLife designs and places annuities; our interest is that yours is the right one. You get the math either way, free.

What taxes do I pay on a Roth conversion of a qualified annuity?

The converted amount is added to your ordinary income for that year (IRC §408A). The strategy is in the staging: converting slices across multiple years keeps you inside your current bracket, converts more dollars at lower rates, and permanently removes those dollars from future RMDs. After conversion, qualified Roth growth and withdrawals are tax-free under current law.

Keep It · Fix It · Convert It

The annuity you were sold deserves a second opinion.

Annuities aren’t the problem — bad design is. Some contracts hold guarantees worth keeping forever. Others quietly bleed rider fees behind a surrender wall. Below: the decision path, the surrender and Roth-conversion math on your numbers, and the IRS citations — so you know which one you own before anyone tells you what to do with it.

Ninety Seconds — Which One Do You Own?

Three questions. Your likely path.

1 · Where does the annuity live?

Every Review Ends One of Three Ways

Keep it. Fix it. Convert it.

Keep it

Older contracts can hold guaranteed rates and income riders that today’s market can’t match. If yours is one of them, the right move is to leave it alone — and we’ll tell you so.

Fix it — §1035 exchange

Non-qualified annuity with heavy fees or weak caps? IRC §1035 moves it into a better-designed contract tax-free — when the improvement clears the remaining surrender charge.

How CentraLife designs annuities

Convert it — staged Roth conversion

Qualified annuity (IRA/401k money)? Conversions staged across tax years turn a future ordinary-income tax bill into tax-free growth — sized to your bracket, not to a rule of thumb.

How conversion fits tax mitigation

Qualified Annuities Only — The Staging Effect

Why conversions are staged, not lump-summed.

Qualified annuity value$250,000

Your marginal tax bracket24%

Conversion staged over5 years

Staging keeps each year’s conversion inside your current bracket. A lump-sum conversion stacks the whole value into one tax year — pushing dollars into higher brackets (illustrated here as a bracket bump; your actual stacking depends on total income).

$50,000

Converted per year (5yr)

$12,000

Est. tax per year, staged

$60,000

Total tax — staged

$80,000

Est. tax — lump sum

Illustrative staging advantage

$20,000

Plus: converted dollars grow tax-free and exit future RMD calculations entirely (IRC §408A).

Primary Sources

The rules, from the rule-makers.

IRC §1035 — tax-free exchanges

The provision that lets a non-qualified annuity move into a better contract without triggering tax on the gains — the "fix it" path.

IRC §408A — Roth IRAs and conversions

The Roth rules: conversions are taxable in the year converted, qualified withdrawals are tax-free — the legal basis of the "convert it" path.

IRS Publication 575 — pension and annuity income

How annuity distributions are actually taxed, including the treatment of qualified vs non-qualified contracts.

IRS Publication 590-A — IRA contributions & conversions

The IRS’s own guidance on moving retirement money into Roth accounts, including conversion mechanics.

SEC / Investor.gov — annuities explained

The regulator’s plain-language overview of annuity types, surrender charges, and the questions to ask before buying or exchanging.

IRC §72(e) — how annuity distributions are taxed

The income-first (LIFO) treatment of non-qualified annuity withdrawals — why exit sequencing matters even after surrender charges end.

IRC §72(q) — the 10% additional tax on early annuity distributions

Non-qualified annuity withdrawals before 59½ generally take a 10% additional tax on the taxable portion — the age gate most sellers skip over.

Asked Constantly

Annuity review — the honest answers.

Only if it’s a qualified annuity — one held inside an IRA, 401(k), or 403(b). Those can be converted to a Roth IRA, and every converted dollar counts as taxable income in the year of conversion, which is why conversions are usually staged over several years to manage tax brackets. A non-qualified annuity (bought with after-tax money) cannot be converted to a Roth — its repositioning path is a §1035 exchange or a planned surrender.

Free · No Obligation · The Math Either Way

Bring us the contract.
We’ll bring the calculator.

A licensed CentraLife advisor pulls your contract’s actual surrender schedule, fees, and rider costs — then shows you keep-fix-convert side by side. If keeping it wins, we say so.

Review My Annuity How We Design Annuities

Estimates on this page are illustrative, based on user-selected assumptions — not a quote, projection of any specific contract, or a recommendation to buy, exchange, or surrender any product. Surrender schedules, fees, and rider terms vary by contract; exchanges and conversions have consequences that depend on your situation. Roth conversion taxation reflects current federal law and can change. This content is educational, not tax or legal advice — CentraLife does not provide tax preparation services. Consult your own tax professional before converting. CentraLife LLC · NPN 21105331.