How to Cash Out of an Immediate Annuity
There are many reasons you may need to cash out of an immediate annuity. Perhaps you need to restructure your investment portfolio or you are facing financial hardship. By definition, immediate annuities are single payment annuities. They are not intended for investors looking for liquidity or growth potential and can be classified into two distinct contract types. The first kind are fixed immediate annuities (guaranteed payments regardless of market performance) and the second are variable immediate annuities (regular fluctuating payments dependent on market performance).
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Instructions
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Understand the consequences of cashing out. Calculate surrender or withdrawal fees. A 10 percent penalty is assessed if you're under the age of 59 1/2. Annuity income is treated as ordinary income, so taxes would be due on the ordinary income. Review you annuity contract to know for sure.
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Use a 1035 transfer. Section 1035 of the IRS tax code allows for tax-free transfers for exchanges between annuities and between life insurance polities. However, you cannot use the 1035 transfer to go from an annuity to a life insurance policy.
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Surrender your immediate annuity for cash and then buy another annuity. This is always an option, but you will still have a tax penalty as the annuity had to be redeemed before the cash could be used to purchase another annuity.
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You could also transfer the immediate annuity money to an IRA (Individual Retirement Account) without a tax penalty as long as you do so within 60 days.
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Ask your broker about waivers or read through the section in your annuity policy about withdrawals and waiver benefits. Some contracts allow access to some or all of your money in the event of a life-altering "trigger" event such as a disability, nursing home confinement or terminal illness.
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Tips & Warnings
As always, seek the advice of a professional investment adviser before making a final decision.
