How To Withdraw From A Profit-Sharing Plan in Retirement With An Annuity

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

How to Withdraw from a Profit-Sharing Plan with an Annuity

Withdrawing from a profit-sharing plan that has been converted into an annuity requires understanding the specifics of the annuity contract, the rules governing profit-sharing plans, and potential tax implications.

Here’s a step-by-step guide to navigating this process:

  • Step 1: Review Your Annuity Contract
    • Understand the Terms: Before making any decisions, review the terms of your annuity contract. Look for information about withdrawal options, surrender charges, and any penalties for early withdrawal.
    • Annuity Type: Determine whether you have a fixed, variable, or indexed annuity, as this affects your withdrawal options and the potential investment growth.
  • Step 2: Consider Your Withdrawal Options
    • Lump-Sum Withdrawal: Some annuities allow for a lump-sum withdrawal, taking out all your money at once. However, this option might come with high fees and tax implications.
    • Regular Payments: Annuities are designed to provide regular payments over a certain period or for life. You can choose to start these payments according to the plan’s schedule.
    • Partial Withdrawals: If your contract allows, you can make partial withdrawals. This option can provide flexibility but may affect future payments or incur fees.
  • Step 3: Check for Surrender Charges
    • Surrender Period: Many annuities have a surrender period, during which withdrawals beyond a certain percentage of the account value come with hefty surrender charges.
    • Charge Schedule: Familiarize yourself with the surrender charge schedule. Charges typically decrease over time.
  • Step 4: Understand the Tax Implications
    • Pre-tax Contributions: Withdrawals from profit-sharing plans converted to annuities are typically taxed as ordinary income since contributions were made pre-tax.
    • Early Withdrawal Penalty: If you’re under 59½, you may be subject to a 10% early withdrawal penalty in addition to income taxes unless you qualify for an exception.
  • Step 5: Consult a Financial Advisor
    • Professional Guidance: Before making a withdrawal, it’s wise to consult with a financial advisor like The Annuity Expert or tax professional. They can provide personalized advice based on your financial situation and retirement goals.
  • Step 6: Initiate the Withdrawal
    • Contact the Provider: Contact your annuity provider to initiate the withdrawal process. They will guide you through the necessary steps and paperwork.
    • Required Documentation: Be prepared to provide any required documentation, such as identification and proof of account ownership.
  • Step 7: Plan for the Future
    • Reassess Your Financial Plan: After withdrawing, reassess your retirement and financial plans to ensure you remain on track to meet your long-term goals.
    • Consider Reinvestment: If you’re withdrawing funds but don’t immediately need them for expenses, consider reinvesting in a tax-advantaged account for continued growth.
Profit Sharing Plan Withdrawal Rules

Conclusion

Withdrawing from a profit-sharing plan that’s been converted into an annuity requires careful consideration of the annuity’s terms, the impact on your finances, and tax consequences. By understanding your withdrawal options, being aware of potential charges and taxes, and seeking professional advice, you can make informed decisions that align with your retirement strategy. Remember, planning and consultation are key to navigating the complexities of annuities and retirement savings effectively.

Request A Quote

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

Contact Us
First
Last

Frequently Asked Questions

What fees are associated with withdrawing from a profit-sharing plan with an annuity?

The fees associated with withdrawing from a profit-sharing plan with an annuity can vary depending on the plan and the annuity you choose. Some plans may charge withdrawal fees or surrender charges if you withdraw your funds before a set period. Reviewing your plan documents and annuity contract to understand any fees associated with your withdrawal is essential.

Can I make changes to my annuity after I’ve chosen it?

Once you’ve chosen your annuity, you typically cannot change it. However, some annuities may offer a period in which you can make changes, known as the free-look period. Therefore, it’s crucial to review your annuity contract to understand any provisions regarding changes.

What happens to my annuity when I die?

When you pass away, your annuity may have a death benefit. The death benefit can give your beneficiaries a lump sum or regular payment.

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

Scroll to Top