‘That Makes Absolutely No Sense’: Orman Warns Family Moving Mom’s $87K Annuity to a Roth

A Boston listener wrote in on behalf of her 78-year-old mother, asking whether Mom should pay a $6,000 surrender charge to move her $87,000 annuity into a Roth IRA at Fidelity. The annuity expires in 2028, pays $250 a month in required minimum distribution (RMD) income, and the mother lives in elderly housing where rent is tied directly to her reported income. Suze Orman, host of the “Women & Money” podcast, was blunt: “There’s no reason to surrender this annuity and take a $6,000 hit, that’s essentially two years of your mother’s income. Why would you do that? That makes absolutely no sense.”

The stakes are concrete. Paying the surrender fee and converting the remaining balance would burn two years of guaranteed income, trigger an income spike that could push Mom’s rent up, and hand a commission to whoever pitched the idea. All to solve a problem that resolves itself in about 24 months anyway.

Why the Advice Is Right, in Dollars

The math here is simple enough to work out on the back of an envelope. A surrender charge is a penalty the insurer keeps when a policyholder breaks an annuity contract early. Annuity surrender charges typically start at 7% to 10% of the contract value in the first year and decline by roughly one percentage point annually until they hit zero. The $6,000 penalty on an $87,000 balance works out to approximately 7%, suggesting this contract is near the end of its surrender schedule, which is exactly why waiting makes more sense than ever.

The contract expires on its own in 2028, meaning the penalty disappears if the family simply waits. Think of it as a break-even problem: the mother draws $250 a month from the contract, and the $6,000 penalty represents nearly two full years of that income stream. For the Roth to justify the cost, it would need to generate more than $6,000 of extra after-tax value over the same holding period. On roughly $80,000 of remaining principal held for two years, that is a very tall order for a 78-year-old whose time horizon and tax bracket make the Roth’s core benefit largely irrelevant.

Roth conversions pay off when the account holder has time and a rising future tax rate. A retiree on Social Security drawing $250 a month from an annuity has neither. The tax hit on the converted amount would land this year as ordinary income, while the payoff (tax-free growth for decades) is a benefit that simply cannot be realized on a two-year horizon. For context, the 2026 Roth IRA contribution limit is $7,500 per year for those under 50, which underscores how disproportionate converting an $80,000 lump sum is as a strategy for someone in this situation. Charles Schwab’s published guidance on Roth conversions recommends that investors calculate exactly how much room remains in their current tax bracket before converting any amount, precisely because the tax bill arrives immediately while the benefit takes years to materialize.

What Actually Decides This: Income-Based Housing

The factor that transforms a bad idea into a potentially catastrophic one is the housing subsidy. Under HUD Section 202, the federal program that provides affordable apartments for low-income seniors aged 62 and older, residents pay rent equal to the highest of three figures: 30% of monthly adjusted income, 10% of monthly gross income, or a property minimum. The average Section 202 tenant earns approximately $16,854 per year, which means even a modest income spike can translate into a meaningful rent increase. A monthly $250 annuity payment folds quietly into that calculation. A one-time conversion of roughly $80,000 does not.

Orman made this exact point on the episode: “if you keep just taking out the money monthly, whatever it is like you are, it’s not going to affect your mom’s housing”, but a lump-sum move would “screw everything up.” Specific outcomes depend on each program’s income definitions and recertification rules, but the direction is clear. A large taxable event in a single year can spike the income figure HUD uses to set rent, raise the monthly payment, and in some programs create complications at the next annual recertification.

The Commission Angle and a Notable Contradiction

Orman went further, arguing the only reason anyone would push this transaction is the commission waiting at the end. The roughly $80,000 left after the surrender charge could generate a fresh payout for whoever places the next product. That dynamic is worth keeping in mind whenever an advisor recommends moving a nearly run-off annuity into anything new.

What makes the advice particularly notable is the source. On her June 28, 2026 episode of “Women & Money,” Orman warned listeners that a fixed annuity is not comparable to a CD and carries insurer credit risk. Yet here she still says stay put, because the exit costs and the housing-benefit risk are larger than the credit risk on a contract with less than two years remaining.

What to Do if You Are in a Similar Spot

1. Pull the annuity contract and find the surrender schedule. Note the dollar penalty today and the exact date it drops to zero. If maturity is within a couple of years, waiting is almost always the cheaper path.
2. Run the break-even calculation yourself. Compare the surrender charge to the after-tax income the contract will pay between now and maturity. If the fee exceeds the income you would otherwise collect, do not pay it.
3. Check the housing program’s income rules in writing. Ask the property manager or caseworker how a one-time IRA conversion would be counted for the rent formula and recertification period.
4. Ask whoever is recommending the move exactly how they get paid. As Orman put it on September 3: “You cannot just take a financial advisor’s word for anything.” Do the math before you sign.

When a contract is running off on its own, patience is usually cheaper than paperwork.

Editor’s note: This article was updated to include Suze Orman’s podcast name (“Women & Money”), industry context on typical annuity surrender charge ranges (7% to 10% in year one), the HUD Section 202 rent formula (30% of monthly adjusted income) and the program’s average tenant income of approximately $16,854 per year, the 2026 Roth IRA contribution limit of $7,500, and Charles Schwab’s published guidance recommending investors calculate available tax-bracket room before initiating any Roth conversion.

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