Roth IRA Annuity Industry Insanity

This topic right here is the newest thing that sets me off. If you have watched my old Shooting It Straight episodes where I lose my mind, start pacing, drilling, spitting, and all that stuff, this is one of those. Today’s topic is Roth IRA annuity industry insanity. And let me tell you why.

My email inbox stays full. Every single company in the annuity world wants Stan The Annuity Man to support whatever shiny thing they are pushing. But here is what decades of experience have taught me. When the annuity industry is aggressively pushing something, I am usually sprinting the other direction, screaming, because I know something is off.

And something is definitely off.

Lately, my inbox, direct mail, and calls from Johnny Wholesaler have all been pushing the same thing: Roth conversions using Indexed Annuities with bonuses. What?

Roth IRAs: A Quick Reality Check

I have been around long enough to remember when Roth IRAs were first introduced. As a concept, tax-free income makes sense. That part is great. Everybody loves tax-free income. But do I trust Washington, DC to leave Roth IRAs alone forever? Not really. I remember when they swore Social Security would never be taxed. Ever. Not going to happen. What is happening now? It is taxed. The same thing worries me about Roth IRAs.

If you already have one, you will probably be grandfathered in. That is fine. Do I personally have one? No. But thousands of my clients do.

Still, I can absolutely see Roth IRAs becoming a political football. Imagine a politician saying, “What makes me mad is all these rich people with Roth IRAs like Peter Thiel, who has a five-billion-dollar Roth IRA.” Look it up. He does. And politicians are furious because they cannot tax it.

So, I can already see the speeches. “We should tax Roth IRAs. That is not fair to the working public.” I do not trust DC not to change the rules, especially when the national debt is climbing at lightning speed. They have to find money somewhere. Hello.

The Annuity Industry Smells Revenue

Now, let us get to the annuity industry. They are asking themselves the same question they always ask: how can we create more revenue? Then a consultant walks in. There is always a consultant. And they say, “I have an idea. Let us take the highest commission product we have, which is the Fixed Indexed Annuity. Then let us pair it with Roth conversions. We can use the upfront bonus to make the pitch sound even more attractive.” I just sit here with my jaw on the floor. Let me be very frank, and I do not know who Frank is, but let me be frank anyway. You do not need a Fixed Indexed Annuity to do a Roth conversion. If you have run the math on the taxes, you are paying up front and the time it takes to make that up, and it makes sense to you, go ahead and convert. But do not ever let someone tell you that you need an annuity to do the conversion. That is ridiculous.

Why Agents Push This Garbage

Here is the truth, and I am the only one in the industry who will say it out loud. Most annuity agents have a small book of business. Maybe one hundred clients. They are not licensed in all fifty states like we are. They do not have a national footprint. So, what do they do? They go back to the same clients repeatedly and flip them into new products. That is called churning. They do it because of commissions, not because it is good for the client.

I recently got an email from a carrier claiming that this Roth conversion Indexed Annuity bonus strategy is a $3 trillion opportunity for agents. Three trillion dollars? So, the “strategy” here is not financial planning. It is not a consumer benefit. It is, “Hey annuity agents, flip every IRA client you have into this new bonus annuity.” It is embarrassing. It is dangerous. And it is wrong. If an agent sold you an annuity inside an IRA and they come back to you pushing a Roth conversion with an Indexed Annuity bonus, you have been warned.

The Myth of Upfront Bonuses

Let us talk about bonuses. When I call them candy for the stupid, people get mad at me. But it is true. Do you really think an annuity company woke up one morning and said, “I feel generous today. Let me give money away.” Never. They are for-profit businesses. There are one hundred pennies in every dollar, and if they give a bonus, they take something away somewhere else. If you think that is wrong, try asking the company to cut you a check for the bonus a month after buying the contract. You will hear nothing but crickets. Bonuses are marketing, not philanthropy.

Tax Advice Is Not an Agent’s Job

Let us be very clear. Roth IRAs are a tax structure. You should never do a Roth conversion without speaking to:

• A CPA
• A Certified Financial Planner
• A tax attorney

Period. Not an annuity agent. Not someone who fed you a steak dinner at a seminar. Not someone who is trying to make a commission by flipping your contract.

The New Shiny Thing

A few years ago, the shiny thing was Indexed Annuities. Then the shiny thing was bonuses. Now the shiny thing is Roth IRAs. I am not against Roth IRAs. But you do not need an annuity to convert to one.

Run the math. It is all math. Nothing else. Do not buy the dream. Own the reality.

If someone pitches you on converting to a Roth using a bonus annuity and says the bonus will offset your surrender charges, they should lose their license. That is churning. It is unethical. It is wrong.

Final Thoughts

Roth IRAs are the shiny thing of the moment. The annuity industry is gearing up to push them hard. You are going to be inundated with pitches in the coming years. Just remember this.

We do not do that. We will never do that. We explain things in a way a nine-year-old can understand, no offense to nine-year-olds.

Simple. Contractual. Will do, not might do.

My name is Stan The Annuity Man. That is shooting it darn straight. See you next time.