How to Cancel a Tax-Sheltered Annuity

Although annuties can provide excellent long-term savings, there can be times when you need the entire proceeds of the contract immediately. Cashing out of an annuity contract generally entails the same process regardless of whether the contract is fixed or variable. The process is fairly straightforward, but might differ from one annuity carrier to another.

Difficulty: Moderately Easy

Instructions

Basic Questions

1. Find out who your annuity carrier is. The company name will be printed on the monthly statement, along with a contact phone number. You can write to the company and request that your contract be liquidated, but it's much faster to call their customer service department.

2. Request that your annuity be liquidated and ask what paperwork you must sign. The company will either mail you a distribution form or have a downloadable copy on its website. You might need to give them a reason why you want the money.

3. Complete the form in full and send it to the annuity carrier. Be sure to sign in every place that is required, and have your spouse or anyone else listed as a co-owner of the contract sign as well. The carrier might accept a faxed or scanned copy as well. If your annuity is inside an IRA, then you will need to complete an IRA distribution form as well.

4. If you are younger than 591/2, prepare to pay an early withdrawal penalty as well as taxes on all of the income you receive. Report the taxable proceeds of your contract as ordinary income according to the numbers that are printed on your 1099R Form.

Resources

• IRS website, pensions and annuities