Blog

Home > Blog

Can You Take All Your Money Out of an Annuity?

Selling your annuity can be a feasible solution when you badly need money for things like home purchase, starting or growing a business, or investing. When you get injured and the fault falls on another party, the insurance company will have to pay you compensation. The payment is distributed over several years to help you cover any financial complications related to the injury. If you are about to retire or want money for the above reasons, you may want to access fast cash from your annuities. Let’s take a closer look at selling your annuities.

You have three major options when you decide to access cash from your future annuity payments. You can choose a partial sale, lump-sum sale, or entirety sale. The most critical thing is evaluating the companies that buy annuities and picking one with the best offer and reasonable payment options. You have a unique reason for selling the annuity, but if you want to sell everything remaining in the contract, you need to be cautious.

Taking all the money from the annuity means you will not have access to future payments. The benefits are transferred to the company, like We Pay More Funding. Here are crucial things you should consider.

Surrender Charges

You might face surrender charges if you decide to take out all the money in the contract. The insurance company will require you to pay a fee, usually in the first10 years of the annuity. The lump sum of money in the contract may grow or decline as years go by, depending on the economy. However, any withdrawal before the period set will incur the surrender fee. It is common for people to want the total amount altogether, which is why the surrender charges are higher during the first year than other subsequent years. For instance, you might pay up to a 50% surrender fee of the total money during the first year and only pay 8% if you wait for eight years.

Tax Impact

You may also face tax consequences if you take out all your money. You’ll want to consult a tax professional on this topic as this will vary per the annuity or structured settlement type. It depends on the investment and how long you have the annuity. The withdrawal will attract the Internal Revenue Service (IRS) penalty of 10% depending on the reason for the withdrawal and the age of the contract.

The reason behind this is that IRS considers annuities as retirement benefits, even if they are not included in your retirement plan. Unless you are 59 years or older, withdrawing all the money from the annuity will attract a penalty. You may also be subjected to income tax, which is calculated at your regular income tax rate.

Final Words

If you decide to withdraw all the money from your annuity, it is vital to understand the penalties you will face and determine if it is worth it. You can withdraw 10% of the money if your contract allows. This allowance comes penalty-free. However, anything about this amount attracts an IRS penalty and surrender charges.