Version A (IUL-funded) uses a life insurance death benefit to fund the conversion tax and requires full underwriting. Version B requires no life insurance and no health qualification. The Bonus FIA provides a cash advanced premium bonus — typically 15–20% of your deposit — that immediately offsets the conversion tax cost. The conversion is then staged across multiple years to stay within optimal tax bracket headroom, and the annuity's growth self-funds both the conversion taxes and the taxes on future deferred withdrawals. The taxes are effectively paid by the annuity, not by you.
Bonus FIA is established with premium deposit
Client deposits funds into a Bonus Fixed Indexed Annuity. The carrier immediately credits a cash advanced bonus of 15–20% — for example, a $500,000 deposit receives a $75,000–$100,000 immediate bonus credited to the account value.
Roth conversion is staged across multiple years
Rather than converting the full IRA in one taxable event, the conversion is divided into annual tranches sized to the client's available bracket headroom above household AGI. Each tranche stays within the optimal tax bracket — ideally the 24% sweet spot where headroom exists. Federal rates range from 22%–37% plus applicable state income tax; each client's situation is unique.
Annuity bonus and growth offset the conversion tax
The upfront bonus — combined with tax-deferred growth inside the annuity — self-funds the tax cost of each annual conversion tranche. Rather than the client writing a check to the IRS from their own pocket, the annuity's bonus and growth effectively cover the tax liability over the staging period.
Original premium protected on all fronts
The original premium deposit is protected against future tax drawdown — the annuity floor ensures the principal base is never eroded by taxes on conversions or withdrawals. The premium is also protected against market loss with a 0% floor — you cannot lose principal due to market decline. Growth is credited based on index performance up to the cap or participation rate.
IRS 5-year rule observed for each tranche
Each Roth conversion tranche starts its own 5-year clock. Converted funds cannot be withdrawn penalty-free until 5 years have passed from the date of each conversion. The multi-year staging in Version B is deliberately designed around this rule — each tranche matures before the next withdrawal is needed, keeping the strategy fully IRS-compliant.
💰 Cash advanced premium bonus
The 15–20% bonus is credited immediately to the account value at deposit — not earned over time. This is real, usable account value from day one that directly offsets the conversion tax cost.
🛡 0% market loss floor
FIA growth is linked to a market index — S&P 500, for example — but the 0% floor means you cannot lose principal due to market decline. In negative market years you earn 0%, not a loss. Growth in positive years is credited up to the cap or participation rate.
📅 Multi-year bracket staging
Each annual conversion is sized to the available AGI headroom — no single-year income spike. This keeps the client in their optimal bracket each year and avoids IRMAA surcharge triggers.
💵 Lifetime income rider option
Most Bonus FIAs include a guaranteed lifetime withdrawal benefit (GLWB) rider — providing guaranteed income regardless of account value. The self-completing Roth benefit is additive to the income guarantee.
✅ No insurability required
Unlike Version A (IUL), there is no medical underwriting, no health qualification, and no age restriction beyond carrier issue age limits. Broader eligibility than any life insurance-based approach.
🔄 Self-funding tax mechanism
The annuity bonus and growth cover both the conversion taxes and the taxes on future deferred withdrawals — so the net tax cost to the client over the full staging period is effectively zero out of pocket.
| Tax aspect | How it works |
|---|---|
| Growth inside annuity | Tax-deferred — no annual 1099, no capital gains tax on index-linked growth until withdrawal |
| Roth conversion tax | Offset by the cash advanced bonus — no direct out-of-pocket IRS payment |
| Withdrawals from Roth | Tax-free after each tranche's 5-year clock expires — qualified Roth distributions |
| Annuity withdrawals (non-Roth) | LIFO rule applies to non-qualified annuities — gains taxed first as ordinary income |
| 1035 exchange | Tax-free annuity-to-annuity transfer available if restructuring is needed |
| Death benefit | Annuity passes to named beneficiary — avoids probate, subject to ordinary income tax for heirs on gains |
IRS 5-year rule — critical planning detail
Each annual Roth conversion tranche starts its own independent 5-year clock on January 1 of the year of conversion. Funds converted in 2025 cannot be withdrawn penalty-free until January 1, 2030. The Version B staging strategy is specifically designed so that each tranche matures before withdrawals begin from that tranche — maintaining full IRS compliance while eliminating out-of-pocket tax costs.
Version B — Bonus FIA is right for you if...
Educational note: The Bonus FIA self-completing Roth is a sophisticated strategy requiring careful coordination of annuity structuring, Roth conversion sizing, bracket management, and IRMAA awareness. Tax rates on conversion range from 22%–37% federally plus state income tax — each client's situation is unique and no universal example applies. This content is educational only. Consult a qualified tax professional and licensed annuity specialist before implementing.