 | I bought an annuity a few years ago, but I don't want it anymore. Is there a way to get rid of it?
Answer: You can cancel your annuity at any time. However, you may have to pay an early cancellation fee known as a surrender charge. The federal government will also penalize you if you cancel your annuity before you reach age 59½. Your annuity contract should have its surrender charges explained in the contract itself. If you cancel the annuity before the date stipulated in the contract, you will be charged a fee that is a percentage of the withdrawn amount. The surrender charge is usually reduced as the annuity gets older and typically ends after the first 10 years. For example, if you wish to cancel a contract that has been in effect for 5 years, the surrender charge will typically be a lower percentage than it would be if your contract has been in effect for only 3 years. Insurance companies will usually allow you to withdraw a certain percentage, typically 10 percent, of your account annually without having to pay any surrender charge. Besides the surrender charges that the insurance company imposes, the federal government may penalize you 10 percent of the earnings portion of the withdrawn amount if you cancel your annuity before you reach age 59½. In fact, the government will charge the same percentage on any amount you withdraw from your annuity before age 59½, to the extent the withdrawal represents untaxed earnings, even if you don't cancel the contract. So, before you cancel your annuity, speak to a trusted financial advisor to make sure you understand any surrender charges or governmental penalties you may incur. | | IMPORTANT DISCLOSURES Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circ*mstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circ*mstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable--we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Copyright 2016 by Broadridge Investor Communication Solutions Inc.
All Rights Reserved. | FAQs
You can cancel your annuity at any time. However, you may have to pay an early cancellation fee known as a surrender charge. The federal government will also penalize you if you cancel your annuity before you reach age 59½. Your annuity contract should have its surrender charges explained in the contract itself.
Is it possible to cancel an annuity? ›
How can you close your annuity altogether? Closing or cashing out an annuity altogether—simply pulling out all your money and shutting down the contract—is an option if you need all of the funds. However, this process may also come with surrender charges, tax implications and the 10% federal tax penalty.
What is the penalty for cancelling an annuity? ›
Qualified annuity payments are taxed as ordinary income, not as capital gains, at distribution or withdrawal. If you take your money out of your annuity before you reach age 59 ½, you will owe an additional 10% early withdrawal penalty to the IRS. Multiply the amount of interest by 10% to determine your tax liability.
Can I cancel my retirement annuity and get my money back? ›
If the total value of your paid-up benefit in the fund is less than R15 000, you can withdraw your benefit as a lump sum before you turn 55.
Can you get a refund on an annuity? ›
A cash refund annuity returns to a beneficiary any sum left over should the person who purchased the annuity—called the annuitant—die before breaking even on what they paid in premiums. Such a provision is typically included as a rider on a life annuity (also known as a "pure life annuity" or "straight life annuity").
How much does it cost to break an annuity? ›
A surrender charge is a penalty for taking out money from an annuity before it matures, usually within six to eight years of purchasing. This charge can be as much as 7% of your annuity's value. To avoid or reduce this charge, wait until the surrender period ends.
Can I cash out my retirement annuity? ›
When you retire and your RA (Retirement Annuity) matures, you can withdraw a maximum of 1/3 of it as a lump sum. We asked an expert what options you have with this lump-sum amount to secure your finances into retirement.
What is the 5 year rule for annuities? ›
Five-Year Rule
With the Five Year Rule, the beneficiary has several options regarding when to receive the death benefit proceeds: Take all the money out soon after the death of the owner. Take periodic payments at any time during the five-year period. Wait until the fifth year to take all the annuity proceeds at once.
Why can't I withdraw my retirement annuity? ›
Cash withdrawals are subject to tax. You retain this right if not used at the time you leave your retirement fund. You cannot make any withdrawals until such time as you leave your new employer. You cannot make any withdrawals until you retire (minimum retirement age is usually 55.)
At what age should you not buy an annuity? ›
If you're less than 50 years old, you should never buy an annuity of any type. Here's another reason. Our friends at the IRS say that if you take out money from an annuity, like a multi-year guaranteed annuity or a fixed index annuity, if you take money out before you're 59 and a half, there's a 10 percent penalty.
The insurance company invests your initial payment. Your annuity account earns interest from these investments. You elect to begin receiving payments from the annuity. You are paid back your original investment plus interest (minus the insurance company's fees).
What happens if you don't annuitize an annuity? ›
Meanwhile, an annuity (that's been annuitized, of course) offers a steady stream of income if one's life expectancy outlasts their income. However, annuitizing is just an option. Annuity holders don't have to do it and can take the money in their annuity elsewhere.
