Sell Annuity? – Do You Need Money Now From Your Annuity?

There are times when we all need more money, perhaps you look at you’re annuity and think ‘sell annuity’ or I’ll get some annuity cash. Simple huh? Well, maybe not!

So how can you get money out of you’re annuity? That all depends on the annuity that you have. If you are under the age of sixty, then there’s a good chance that you could face tax penalties for withdrawing funds. Whether this is so, and how much these penalties are, will all depend on the terms of your annuity.

A typical annuity is a contract between yourself and your insurance company. You have agreed to pay the insurance company a certain amount of money. Accordingly, your insurance company agrees to pay you a particular amount in the future. So how can you cash in?

Certain annuities will actually start paying you the moment you buy them, such as annuities that are set up to pay huge athletic salaries, or those that pay you when you reach a certain age. Variable rate annuities are simply mutual funds. You pay the money, it will then be invested, and at a future date that mutual fund begins to pay you.

Money that is placed in a variable rate annuity may be tax deferred in certain instances. What this basically means, is if you are eligible, you can actually put pre-tax dollars into the annuity. With any annuity, you don’t pay any taxes on the money your investments earn until you start taking the money out. If you decide to remove any money from a variable rate annuity before your 59th birthday, then you will most probably have a 10% additional tax penalty to face, as well as any deferred income taxes at your existing tax rate.

An annuity is an opportunity to join other investors in long term growth. It is meant to build for an improved retirement. However, if you choose to take money out early, then you better watch out! It could easily end up costing you three times the gain on your original investment!

So if you’re going to take out money from your annuity before your 59, then there are going to be penalties for doing so. Besides the money you will have to pay to the IRS, the insurance company who are managing your money will also charge you a fee; it’s similar to breaking a CD with a bank. This could well be several percent of the money you choose to take out, or it’s quite possible that you won’t be permitted to take anything out! Again, it can’t be stressed enough, always read the terms of any agreement you enter into very carefully.

So what if you’ve previously annuitized your variable rate annuity and you’re having a change of heart? If you find yourself in this position, then you’re out of luck. You won’t be able to change your mind. Once you have taken the decision to start withdrawing from your annuity, then it is set for the term of the contract. A few companies will make exceptions for last illnesses, but that’s about all.

Nationally, just three percent of annuity contracts are ever ‘annuitized’, or paid out over time, this all means that a huge 97% of people who buy annuities changed their minds before retiring. So, read the contract you’re given carefully, because you will face stern penalties for withdrawing early, both from the government and the company.

If you do wish to completely sell your annuity, there are finance companies that will buy your contract from you. However, we do suggest you speak with your financial advisor before you sign any contract.