If you already have an annuity withdrawal may be an option you are considering if you need access to your money.
The problem is that early annuity withdrawal can be an expensive move, because there are going to be all kinds of penalties you are going to encounter, from federal penalties and taxes to insurance company charges.
Make sure you know the rules of your plan and the federal law surrounding early annuity withdrawal if you decide to proceed in this fashion, because things can get quite sticky before you even realize it. Nobody is going to tell you a lot of this before hand. It is up to you to arm yourself with the knowledge.
Below are some of the fees you may encounter if you withdraw from your annuity early. How early you cash out effects the penalty fee as well.
Early Annuity Withdrawal Penalties
Most annuities are safe for withdrawal by the time you reach the age of fifty-nine and a half. However, if you start drawing payments before you reach that age, then you will be made by federal law to pay a ten percent early annuity withdrawal penalty.
In addition to this penalty, you will still have to pay income tax on your annuity’s earnings. The money you contributed to the investment won’t be taxed, thankfully.
It is one thing to withdraw from your annuity early before you reach the retirement age, but there is another stipulation to early annuity withdrawal, and that is withdrawing in the first five to seven or eight years.
This will cause you to be hit with a surrender charge from the insurance company you hold the annuity with. You will find the fee to hang around seven percent before the first year is over, and then it decreases by a percentage point every year after until it hits zero.
Can you imagine paying a 10% federal early annuity withdrawal fee, a 7% surrender charge, income tax on the earnings, plus another three percent in commissions and account management fees? This can become very costly. You should not get into an annuity if you don’t foresee yourself leaving the money in the account for many years.
Early Annuity Withdrawal Special Situations
Now, always check your own specific annuity’s rules on early withdrawal, because some have surrender charges as extreme as twenty plus percent! Of course this lessens as time goes on, but it’s still high regardless.
But if you really need to access some of the money, there are many annuities that allow you to withdraw up to ten percent before you are made to pay a surrender charge. Always check your annuity specifically. Don’t go based on generalities or you’ll get taken for more than you want. If you plan on making an early annuity withdrawal, do so with extreme care.