Can Money Be Withdrawn From Annuities Anytime?
Annuities are tax-sheltered vehicles meant for retirement planning. They are perfect for some situations, but there are limitations and people who should not invest into an annuity. Part of the problem is the limitations on removing the funds.
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Types
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The type of investment they contain categorizes annuities. Fixed annuities give an interest return, like a CD, on the principal. Variable annuities use mutual funds for their growth. Indexed annuities have a guaranteed minimum but if the index it's based on increases, the owner participates in the growth.
Rules
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Regardless of the category of the annuity, they all function the same way. There is a difference in immediate and deferred annuity rules. These classifications describe when you take the money, now, as a cash stream, or later. Once you take an immediate annuity, you no longer have access to the principal under most contracts.
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Contract Penalties
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Most annuities have a surrender period. You pay a specific percentage if you take a withdrawal before the end of a certain time period.
LIFO
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The IRS uses LIFO, last in, first out, as the tax rule. That means interest or growth is the last in and for tax purposes, the first amount you remove.
Tax Penalties
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If you remove money from an annuity before you're 59 1/2, you pay a penalty when you pay your taxes the following year. The penalty is on the growth of your funds.
Withdrawal
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You can withdraw your money anytime from a deferred annuity but you might pay heavy penalties to the company, the government or both.
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References
- Photo Credit Image by Flickr.com, courtesy of Andres Rueda
