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Annuity Withdrawal Penalty Exceptions

Annuity Withdrawal Penalty Exceptions

An annuity is a form of retirement investment that you can purchase through an insurance company. As to the safety principal, the annuity usually carries a guarantee from the insurance company that issues the annuity, and annuity offers tax-deferred earning as well.

However, the guarantee that the annuity carries is only as good as the financial strength of the issuing insurance company, as the FDIC does not insure annuities. The multiple annuity fines are formed to encourage you to leave your money for the long-term, but several circumstances can make you w to withdraw your money before the due date.

How old are you?

As with several long-term retirement plans such as IRAs and 401ks, you cannot take an early distribution from an annuity. Since this is devised for retirement savings, you will be penalized by the IRS for withdrawing early before you reach the age of 59.5 – you will be fined 10 percent of the amount you want from the annuity. You can avoid this early penalty by not taking the money until after age 59.5.

Can you keep the annuity until after the surrender period lapses?

Besides the early distribution penalty assessed by the IRS, you will be charged a Surrender Charge by your insurance company if you withdraw from your annuity before you have held it for a specified number of years. The details of the surrender charge vary from an insurance company to the other. Nevertheless, the insurance company will charge up to 7 percent of the amount of money you take out of an annuity in the first few years after you buy your annuity. The charges usually fall by about one percent annually, and it vanishes altogether after 7-8 years.

Take partial withdrawals

Some insurance companies offer annuity withdrawal penal exception to investors that take out a limited amount of their annuity in any given year. Usually, an insurance company will allow you to withdraw about 10 percent of your annuity in a year without paying the surrender fee. However, if you are under 59.5 years, you’ll still be penalized by the IRS, and no matter when you withdraw, you still pay at least some income taxes. 

Hardship withdrawals 

Sometimes an investor will need to withdraw funds from their annuity because of severe hardship. Most of the annuity contracts cover disastrous situations through waivers, which let you make a partial withdrawal or surrender the annuity without paying the standard penalties. 

The annuity withdrawal penal exception is usually triggered by a significant medical emergency, such as being confined to a nursing home or diagnosed with a terminal illness. This gives you access to withdraw the funds that otherwise would remain tied until you reach the retirement age.

In conclusion

 In several cases, the discount rate linked with selling some of your annuity is less than the taxes and fees you’d pay if you withdraw from your annuity account. That being the case, selling part of an annuity is a preferred option. For more detailed information, call We Pay More Funding to talk with a financial expert.


Annuity Withdrawal Penalty Exceptions
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