How to Cash in an Annuity Early

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Annuities are tax-deferred investments offered through insurance companies that have a contract term called a surrender period. You can cash out of an annuity during the surrender period, but may be assessed a penalty in doing so. In addition, if you are not yet 59-1/2 years old, you may be assessed a 10 percent tax penalty for cashing out early, according to the Internal Revenue Service. Pulling the money out is easy; keeping track of contract penalties and tax consequences is where people get confused.

Step 1

Look at your annuity contract. There should be a page with a summary of the date the annuity was created, the amount it was created with and the length of the surrender period. Along with the surrender period duration, there should also be a schedule of fees called surrender charges that are assessed when the contract is cashed out during the surrender period.

Step 2

Read the section that discusses waivers. You may be able to pull out a certain amount of money annually without penalty, or there may a be a surrender charge waiver for long-term care or disability needs, according to Your policy will have the details about waivers, if any, for which you qualify.

Step 3

Consult a tax adviser about the tax consequences for pulling the money out of the annuity early.

Step 4

Request a cash surrender form from the annuity company.

Step 5

Fill the form out completely with your correct address to ensure that the check does not get lost. You may request a complete surrender, partial surrender or start a systematic payment program. You will have the option of having taxes withheld or being subtracted from the payment. You should include with the form any information pertinent to a waiver such as long-term care admittance.

Step 6

Sign the form and submit.


Surrender fees are usually higher in the first years of the contract and decline over time. A surrender period may be anywhere from three to 15 years.

If you are under the age of 59-1/2, you may be able to create a systematic payment plan that gives you a regular payment from the annuity without tax penalty (income taxes still apply). This is accomplished using IRS Regulation 72t that allows a regular and systematic payment from an annuity without penalty as long as the payments continue and are not stopped.