An investor who rolls a 401(k) into an IRA expects flexibility, lower costs, and simple choices like mutual funds or ETFs.

Discovering that the money was placed into a variable annuity instead can feel like stepping into a maze. The good news is that escape routes often exist, but the cleanest path depends on timing and fees.

Why It Hurts

A variable annuity can be a poor fit inside an IRA because the IRA already provides tax deferral. The annuity’s big selling point—tax-sheltered growth—doesn’t add much when the account is already sheltered. What remains is complexity, layers of fees, and restrictions that can make it harder to manage a rollover efficiently.

Michael Kitces, a financial planner, writes, “Tax deferral is not tax avoidance… it’s just deferral.”

When Annuities Work

Annuities are not automatically “bad.” A plain immediate annuity can be useful near retirement for people who want a predictable lifetime income stream and are comfortable trading liquidity for stability. The issue is placing a variable annuity into an IRA years before income is needed, when the investor is still in growth mode.

The Sales Pitch

The most common justification is a set of add-on guarantees called riders, such as guaranteed income or withdrawal features. These options can sound reassuring, especially after market scares. The catch is that guarantees are not free. They often come with extra annual charges, and the rules can be complicated enough to surprise investors later.

Know the Costs

Before making any move, get a full fee breakdown. Variable annuities can stack costs: insurance-related expenses, administrative fees, fund expenses, and rider charges. Total annual costs above 2% are not unusual. Over time, that drag can significantly reduce growth, which is exactly what long-term retirement money needs to fight rising living costs.

Move Without Taxes

Because the annuity sits inside an IRA, moving it can often be done without triggering current taxes, as long as the transfer is handled correctly. The safest method is typically a trustee-to-trustee transfer into a new rollover IRA at another custodian. That keeps the money inside retirement shelter rather than becoming a taxable distribution.

Surrender Schedule

The main obstacle is surrender charges. Many annuities impose an exit fee that often starts around 7% and declines each year until it disappears over a multi-year schedule. The exact schedule is spelled out in the contract or prospectus. Request the surrender-charge table in writing and confirm the current percentage.

Free-Look Window

Some contracts include a “free-look” period, a short window to cancel after purchase, often around 10 days, sometimes longer depending on location. If the annuity was purchased recently, acting quickly can avoid surrender fees. The state insurance department can confirm required timelines. If the window is open, cancellation may return the contract value or premium.

Partial Exits

If the free-look period has passed, many annuities still allow a limited annual withdrawal—commonly 10% of account value—without surrender fees. That feature can be used to start migrating money out gradually. Each year, the surrender charge typically declines, allowing larger transfers later at a lower cost or with no cost at all.

Timing Tactics

Deciding whether to exit immediately or phase out is a math problem, not a gut call. Compare two costs: the one-time surrender fee paid today versus the ongoing annual fee drag paid over multiple years. If ongoing expenses are steep, staying put can be more expensive than a surrender charge. A clear comparison can guide a rational timeline.

Ask for Reversal

It can be worth returning to the adviser or firm and requesting a reversal, especially if the product was presented as a standard rollover solution without clear discussion of costs and constraints. Ask for a written explanation of why the annuity was recommended inside an IRA and request that the firm make the account whole if the move was unsuitable.

Document Everything

Gather the contract, prospectus, fee schedule, surrender-charge table, and any sales illustrations. Write down dates, conversations, and what was promised. Request itemized annual costs and ask how the recommended product compared to a basic rollover IRA invested in low-cost funds. Clear documentation makes it easier to negotiate, transfer, or file a complaint if needed.

Regulatory Options

If the sales process was misleading, complaints can be filed with the relevant oversight bodies. Common avenues include the Securities and Exchange Commission, FINRA, the state securities regulator, and the state insurance department. Include account statements, disclosure documents, and a timeline of what was said versus what was delivered, focusing on costs, suitability, and omissions.

Conclusion

Escaping a variable annuity inside an IRA usually comes down to four moves: understand the fees, confirm surrender rules, use a tax-safe transfer method, and choose an exit timeline that minimizes long-term damage. If the recommendation was inappropriate, escalation may help protect others too. A simple cost comparison can show whether paying to exit now is cheaper than absorbing high annual charges over time.