Mastering Annuity Withdrawals: Your Comprehensive Guide to Tapping into Your Annuity

Shawn Plummer

CEO, The Annuity Expert

Navigating the annuity world can be daunting. With intricate mechanisms like annuity withdrawal, full withdrawal from an annuity contract, and potential penalties like union annuity early withdrawal penalties, withdrawing money from an annuity can easily be intimidating. But fear not! This comprehensive guide is aimed at demystifying the realm of annuities, making it easier for you to make informed decisions and tap into your funds when needed.

Confused About Annuities?

Are you new to annuities and unsure where to begin? Visit our Annuity Learning Lab for expert guidance and insights.

Annuity Withdrawal: Understanding the Basics

An annuity withdrawal refers to the act of withdrawing money from your annuity account. This could be either in regular payments or a lump sum. As a common practice among many, annuity withdrawals are critical to retirement planning. They provide a steady income stream during your golden years. However, it’s vital to understand the specific terms of your contract before proceeding with a withdrawal.

Withdraw From Annuity

Withdrawing From Annuity: The Right Time and Way

Deciding the right time to withdraw from an annuity can be strategic. Age, financial stability, and tax considerations are crucial factors to consider. Most annuities impose a “surrender charge” for withdrawals made within a certain period after purchase, typically within five to seven years. Waiting out this period can save you significant fees.

In the case of a Full Withdrawal From an Annuity Contract

Full withdrawal from an annuity contract signifies taking out all the money in your annuity. While this option provides immediate access to your funds, it comes with its own set of challenges. Full withdrawals often lead to a substantial tax bill, as earnings on annuities are taxed as ordinary income. Moreover, if you’re under 59½, the IRS will also hit you with a 10% early withdrawal penalty.

Annuity Withdrawals

Union Annuity Early Withdrawal

Union annuities usually have their own rules and restrictions regarding early withdrawals. These regulations often include additional penalties levied on top of the standard taxes and surrender charges. Therefore, it’s crucial to thoroughly read and understand your contract before deciding to make a union annuity early withdrawal.

How to Withdraw Annuity Without Draining Your Savings

Strategizing and understanding the tax implications is the key to withdrawing from an annuity without draining your savings. Opting for a systematic withdrawal plan, where you only take out a portion of the funds, can help reduce your tax burden and make your savings last longer. This way, your money grows tax-deferred, and you avoid surrender charges and hefty taxes associated with full withdrawals.

Withdrawal From Annuities

Withdrawing Money from Annuity: The Tax Implications

The tax implications when withdrawing money from an annuity can be substantial. Withdrawals are considered income. Thus they’re taxed at your ordinary income tax rate rather than the lower capital gains rate. Annuity contracts are taxed on a “last in, first out” (LIFO) basis. This means the gains (interest) are withdrawn before the principal, making early withdrawals predominantly taxable.

Next Steps

Understanding the complex mechanics of annuity withdrawals is crucial in making informed decisions about your retirement savings. Whether considering a complete withdrawal from an annuity contract or strategizing to avoid union annuity early withdrawal penalties, a deep understanding of your contract is critical. By embracing the right strategies and knowing the tax implications, you can turn your annuity withdrawals into a pathway to financial freedom.

Withdrawing From Annuity

Request A Quote

Get help from a licensed financial professional. This service is free of charge.

Contact Us

Frequently Asked Questions

What is a typical surrender charge on an annuity?

The amount of the surrender charge will vary depending on the type of annuity and other factors, such as the length of time it has been in effect. Generally, most annuities will have a surrender period that ranges from one to seven years. During this time, there may be a surrender charge assessed by the insurance company if you choose to withdraw funds early.

What kind of fees should I expect if I withdraw from my annuity early?

The fees associated with withdrawals before the end of the surrender period can vary greatly. A flat fee may be assessed for early withdrawal or a percentage of the total amount applied as a penalty. In some cases, you may also incur additional charges if the annuity has certain features, such as living benefits riders. It is essential to discuss any potential fees with your financial professional before making an annuity withdrawal.

What are some common reasons for early annuity withdrawal?

There are various reasons why someone may withdraw from their annuity before the end of the surrender period. These include unexpected medical expenses, college tuition payments, home repairs, and other urgent needs. In some cases, people may also need access to cash due to changing financial circumstances. It is essential to understand that early withdrawals from an annuity will usually trigger a surrender charge, so it is essential to consider the potential fees before making any decisions.

Related Reading

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

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

Scroll to Top