Annuity Surrender Carried Steep Tax and Fee Risks

Financial expert Suze Orman warned that prematurely liquidating an $87,000 annuity can trigger costly penalties and tax consequences.

Updated on Sept. 20, 2026 in Financial Planning

Bold vector editorial illustration showing an iron padlock chained to a heavy anchor, symbolizing financial commitment and potential penalty. — Financial expert Suze Orman warned that prematurely liquidating an $87,000 annuity can trigger steep surrender charges and unexpected tax liabilities. AI Illustration. Upload story photo >

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Suze Orman advised against surrendering an $87,000 annuity to fund a Roth IRA conversion after a 78-year-old individual considered the move on September 3, 2026. The decision to liquidate early would have triggered significant fees and potential impacts on eligibility for federal assistance.

Why it matters

A premature surrender of an annuity often results in substantial financial losses and tax liabilities that can outweigh the perceived benefits of a retirement account conversion. Furthermore, large lump-sum taxable events can inadvertently disqualify households from essential federal housing subsidies.

The proposed $87,000 annuity surrender carried a $6,000 penalty, an amount equivalent to two years of the $3,000 annual income the contract provides. This highlights the cost of liquidating assets before they reach maturity in 2028.

The players

Suze Orman

A financial educator and media personality who provides advice on personal finance, retirement planning, and wealth management.

The details

Surrendering an annuity before its expiration date triggers a surrender charge, which in this case cost $6,000. Beyond the immediate fee, converting the proceeds to a Roth IRA creates a taxable event treated as ordinary income, further reducing the total investment. For households receiving federal benefits, this sudden increase in reported income can also impact eligibility for housing subsidies.

September 3, 2026: Suze Orman discussed the financial risks of annuity transfers.
2028: The annuity contract reaches its scheduled expiration date.

Money Landscape

This situation illustrates the rigid tax structure surrounding annuity liquidations under the Internal Revenue Code. It serves as a reminder that complex retirement products often come with specific holding periods that, if ignored, can severely impact household net worth.

Before liquidating any retirement asset, calculate the exact surrender charges and potential tax impact on your overall household income. Consult with a qualified tax professional to ensure that any major changes to your savings do not jeopardize your eligibility for government benefits.

The takeaway

Annuity contracts are long-term commitments that often offer the most value when held until their official expiration date. Always review your contract documents to identify the exact date your surrender charges vanish before planning any large-scale asset transfers.