Can Annuities Be Cashed In?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Can Annuities Be Cashed In?

Yes, annuities can be cashed in, allowing you to access the cash value of your investment either as a lump sum or by selling the payments. However, there are important considerations and options to be aware of before making this decision.

Most deferred annuities can be cashed in if you haven’t started receiving payments yet. This includes variable annuities, fixed annuities, and fixed index annuities. There are several ways to cash in an annuity, including withdrawals, loans, return of premium, surrender, or a crisis waiver.

While cashing in an annuity provides immediate access to funds, it’s important to weigh the pros and cons. On one hand, you’ll have immediate cash and the potential for tax advantages. On the other hand, there may be surrender charges, taxes, penalties, and the loss of a future income stream. Ultimately, the decision to cash in an annuity requires careful consideration based on your financial goals and individual circumstances.

Key Takeaways:

  • Cashing in an annuity allows access to the cash value of the investment.
  • Most deferred annuities can be cashed in before receiving payments.
  • Options for cashing in include withdrawal, loan, return of premium, surrender, or with a crisis waiver.
  • There are pros and cons to cashing in an annuity, including potential tax advantages and surrender charges.
  • Consider your financial goals and individual circumstances before making a decision.
Can Annuities Be Cashed Out?

Types of Annuities That Can Be Cashed In

Several types of annuities can be cashed in, providing individuals with the flexibility to access their funds when needed. Whether you have a variable annuity, fixed annuity, or fixed index annuity, all of these options can be converted into cash.

Variable Annuities

Variable annuities are investment accounts offered by insurance companies that allow individuals to choose from a variety of underlying investment options, such as mutual funds. The value of variable annuities fluctuates based on the performance of these investments, providing an opportunity for growth. If you have a variable annuity and find yourself in need of immediate funds, you can cash it in and receive the current cash value.

Fixed Annuities

Fixed annuities offer a guaranteed fixed rate of return on your contributions. These annuities provide a reliable and predictable income stream, making them an attractive option for individuals looking for stability. If you have a fixed annuity and require access to a lump sum of money, you can cash in the annuity and receive the accumulated cash value.

Fixed Index Annuities

Fixed index annuities combine elements of both variable and fixed annuities. These annuities offer a rate of return based on the performance of a market index, such as the S&P 500. While the return is tied to the index, there is often a minimum guaranteed rate of return as well. If you have a fixed index annuity and need to cash in, you can convert it into a lump sum of money.

Types of Annuities That Cannot Be Cashed In

Some annuities cannot be cashed in, particularly those that are in the payout phase or are immediate annuities. These annuities are designed to provide a steady income stream and do not offer the option to access a lump sum of cash.

Immediate Annuities

Immediate annuities begin payments almost immediately after a lump sum is invested. Since these annuities are structured to provide a guaranteed income stream, they cannot be cashed in for a lump sum after the payments have started.

Annuitized Contracts

Once an annuity is annuitized, it means the contract has been converted into a series of payments over time, often for the life of the annuitant. These contracts generally cannot be reversed or cashed in for a lump sum once the payout phase has begun.

Types Of Annuities That Can Be Cashed Out

Cashing In Annuities: What You Need to Know

Surrender Charges and Penalties

When cashing in an annuity, be aware of potential surrender charges. These fees are typically highest in the first few years of the contract and decrease over time. The specific amount and duration of surrender charges vary by contract, so review your annuity’s terms carefully.

Additionally, if you are under 59½, you may face a 10% early withdrawal penalty from the IRS, in addition to ordinary income taxes on the withdrawn amount. This can significantly reduce the amount of cash you receive from your annuity.

Partial Withdrawals vs. Full Surrender

Instead of cashing in your entire annuity, consider taking partial withdrawals. This option allows you to access some of the funds while keeping the remainder invested. Partial withdrawals often come with fewer penalties and allow you to continue benefiting from the annuity’s features and potential growth.

Another option is full surrender or cashing in the entire annuity. However, this comes with the aforementioned surrender charges and tax implications. Evaluate your financial needs and goals to determine which option is best for you.

Crisis Waivers

Some annuities offer crisis waivers, which allow you to access funds without penalties under certain circumstances, such as terminal illness, long-term care needs, or disability. These waivers can provide much-needed flexibility in times of financial hardship. Check your annuity contract to see if it includes any crisis waivers and the conditions under which they can be utilized.

Tax Implications

Cashing in an annuity can have significant tax consequences. The amount you receive is subject to ordinary income tax on the gains portion of your withdrawal. If you have a non-qualified annuity, your contributions are not taxed, but the earnings are. Consult with a tax professional to understand the full tax implications of cashing in your annuity.

Alternatives to Cashing In

Before deciding to cash in your annuity, explore alternative options. These might include taking out a loan against the annuity, using other savings or investments, or restructuring your financial plan to meet your needs without accessing the annuity funds.

Steps To Cash Out An Annuity

How We Can Help

At The Annuity Expert, we understand the complexities of retirement planning and the crucial role annuities play in securing your financial future. For over 15 years, we have served as an insurance agency, annuity broker, and retirement planner, committed to finding the best solutions at the lowest costs.

We believe in empowering you with knowledge and tailored strategies that align with your unique goals and circumstances. Our team of experts understands the emotional challenges that come with navigating retirement planning, and we are dedicated to earning your trust and respect through our authority and understanding.

What We Recommend

  • Comprehensive Evaluation: We begin by conducting a thorough evaluation of your current annuity contracts, financial situation, and long-term objectives. This allows us to identify the most suitable options and potential strategies for cashing in your annuities, ensuring you make informed decisions that align with your best interests.
    • Benefit: A personalized approach tailored to your unique needs.
  • Strategic Planning: Based on our evaluation, we develop a customized plan that outlines the optimal approach to cashing in your annuities. This may involve a combination of full surrenders, partial withdrawals, or alternatives like crisis waivers or loans, depending on your specific circumstances.
    • Benefit: A well-crafted strategy that maximizes your returns while minimizing costs and penalties.
  • Implementation and Ongoing Support: With your approval, we execute the agreed-upon plan, handling all necessary paperwork and coordinating with the insurance companies on your behalf. Throughout the process and beyond, we provide ongoing support, guidance, and regular reviews to ensure your retirement goals remain on track.
    • Benefit: Peace of mind knowing your financial future is in experienced hands.

Our Features and Benefits:

  • Personalized Strategies: Tailored solutions that consider your unique circumstances and goals.
  • Extensive Industry Knowledge: In-depth understanding of annuity products, regulations, and market trends.
  • Collaborative Approach: We work closely with you, ensuring transparency and open communication.
  • Fiduciary Commitment: We act in your best interests, putting your needs first.
  • Comprehensive Services: From annuity analysis to retirement planning and wealth management.

Common Objections Addressed:

  • I’m not sure if cashing in my annuity is the right choice.” Our team will thoroughly evaluate your situation, present all options, and provide unbiased recommendations to help you make the most informed decision.
  • I’m worried about penalties and taxes.” We specialize in minimizing the impact of surrender charges and taxes, ensuring you retain as much of your hard-earned investment as possible.

Failing to properly manage your annuities can result in missed opportunities, significant financial losses, and a compromised retirement. By working with us, you gain the peace of mind that comes with having a trusted partner guiding you towards a secure and fulfilling future.

By proactively addressing your annuity needs, you will experience a sense of control over your financial destiny, confidence in your retirement plan, and the freedom to pursue your dreams without the burden of uncertainty.

Contact us today for a free consultation or personalized quote. Unlock the full potential of your annuities and embark on a seamless journey towards the retirement you deserve.

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Questions From Our Readers

Is selling annuity payments an alternative to cashing out?

Yes, selling annuity payments is an alternative to cashing out. It can be done through a partial or lump-sum sale with a discount rate.

Can I cash out my annuity to start anew after my divorce?

If outside the surrender period, taxes are applicable. If within, consider penalty-free withdrawals first, minimizing penalties. Await the next anniversary date for another penalty-free withdrawal. Once all penalty-free withdrawals are exhausted, cash in the annuity has less of a penalty.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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