Q: When can I withdraw from an annuity?
A: In most annuities, you can withdraw all or part of your money at any time during the accumulation period, though certain surrender charge provisions may apply. Withdrawals are subject to tax and withdrawals prior to age 59 ½ are subject to an additional 10% tax penalty.
Q: What choices do I have for withdrawing money from an annuity?
A: There are two options you have for withdrawing money from an annuity contract. You can make a partial or total lump sum withdrawal of your money at any time. The typical contract allows for a withdrawal of 10% of the contract value per year without incurring a surrender charge. However, if you are under the age of 59 ½, a 10% IRS penalty tax may be incurred. The second method of withdrawing money is to annuitize your contract. Annuitization can provide an income stream that can not be outlived. Payments are a set dollar amount based on your age, gender and the value of your contract. Payments can be for a set period of time, or for the rest of your life. Guarantees are based upon the claims-paying ability of the insurer.
Q: Are there any free withdrawals?
A: Many contracts stipulate up to 10% of the policy value may be withdrawn each policy year with no surrender charge. Withdrawals are subject to tax, and withdrawals prior to age 59½ are subject to an additional 10% IRS tax penalty.
Q: What about withdrawal exceptions?
A: In many contracts, surrender charges may be waived under the following conditions:
- Death
- The partial withdrawal of up to 10% of policy value each policy year
- Required distributions for the annuity policy value
- Distributions to cover expenses incurred due to continuous confinement of 30 days or more in a skilled nursing care facility (where available by rider)
- Refund of excess contributions to a tax-qualified plan
- Terminal illness and disability
- Unemployment
Q: What if I die before I have withdrawn all of my money?
A: Any funds remaining in your annuity — both principal and interest — will be paid to your beneficiary in the event of your death. Further, your beneficiary can decide how to be paid: in a lump sum, over a certain period of time, or for the rest of the beneficiary's life. Generally, if you elect an annuitization payment to be paid over your life, no further payments will be made after your death.
Q: Are there tax penalties if I withdraw my money?
A: Yes, withdrawals prior to age 59½ are subject to a 10% IRS tax penalty.
Q: When do I pay taxes on my earnings?
A: When you withdraw money from your annuity, the earnings, under the Internal Revenue Code, are withdrawn first. The earnings are subject to ordinary income taxes in the year in which they are withdrawn. If you withdraw your earnings and are under the age of 59 ½, not only are your earnings taxed at ordinary income tax rates, the Internal Revenue Code provides that you pay an additional 10% penalty tax on the earnings.
Q: Will I receive a 1099R form?
A: You will receive a 1099R when a withdrawal of earnings has been taken from the contract.
Q: Can I change my mind once I have purchased the annuity?
A: Certain contracts allow for a free look period, typically 30 days, from the date in which the owner is delivered the contract. During this free look period you may request to terminate the contract and have all money that you contributed to the contract sent back.
