Yahoo Finance How To Get Out of an Annuity You No Longer Want
An annuity — a contract between you and an insurance company that requires the insurer to make payments to you, either immediately or in the future — is a good way to guarantee fixed income during retirement. You can buy an annuity by making either a single payment or a series of payments, and similarly, your payout may come either as one lump-sum payment or as a series of payments overtime, according to Investor.gov.
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Yet there are several reasons why you might not need one anymore, and there are alway ways to get out of annuity if you no longer want one.
If you’re considering dropping your existing annuity or taking a different path with your investment, senior vice president of Nationwide Annuity Distribution Rona Guymon suggested seeking out a financial professional who can determine if your investment goals have changed and what investments may be available to support your current goals.
“With annuities in particular, there are different levels of flexibility that are now offered that were previously not available,” Guymon said, adding that annuity products have evolved, product development has progressed and interest rates have increased consumer value.
In addition, Guymon noted that some annuities now include free withdrawal provisions, which allow contract owners the ability to withdraw a designated portion of their funds — often 10% each year — without incurring a surrender charge.
“Others have waivers that allow access to account values without penalties if triggering events occur, like hospital stays, nursing home admissions or terminal illnesses, to name a few,” Guymon asserted. “The industry is more focused on being client-friendly than ever before and the interest rate environment is allowing annuities to provide more benefits than they have in the past.”
Here are some specific ways to get out of an annuity.
1035 Exchange
A 1035 Exchange is a tax-advantaged way to switch annuities and it lets you transfer funds from your current annuity to a new one without facing immediate taxes, explained Jeff Rose, CFP and founder of GoodFinancialCents.com.
According to Rose, this can be a smart move if you find an annuity with lower fees, better returns, or features more aligned with your current financial goals.
“Keep in mind, the new annuity will have its own terms and surrender period,” he said.
Pay the Surrender Charge
A surrender charge is a fee assessed for withdrawing funds from an annuity during an initial pre-set number of years, per MassMutual.
Thus, if your annuity is still in its surrender period and you need out immediately, paying the surrender charge might be your only option, according to Rose.
“This fee, which decreases over time, can be substantial in the early years of the contract — I’ve seen charges in the 7-15% range. It’s a direct cost for accessing your funds early, but sometimes it’s worth it if staying in the annuity is more financially detrimental in the long term,” he said.
Withdrawal Options
Rose also recommended checking to see if your annuity contract allows for partial withdrawals without big fees.
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“Many annuities let you take out a certain percentage each year, like 10%, without a surrender charge. This is a way to get some money without paying a lot in fees,” he said. “Remember, though, that taking money out can have tax impacts. Withdrawals are usually taxed as income, and if you’re under 59.5, you might also face an extra 10% tax penalty.”
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