Cashing out a tax-sheltered annuity early presents a minor challenge. The institution with which you established the TSA account derives profit from holding the principal, and it has agreed to pay interest to you for the privilege of using your money. If you pull your funds out early, the bank profits less. Most institutions have set up processes and/or penalties to discourage early withdrawal.
When shopping for institutions in which to take out a TSA account, find out about their policies for early withdrawal. Though these policies aren't the only things you should consider, they are worth taking into account.
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Contact your institution at least two months before you'll need to cash out your account.
Ask about account transfer options. Some institutions will waive or reduce early-withdrawal charges if you transfer the money to another, more easily accessible account with the same institution.
Have an account manager walk you through the math of the withdrawal charge, which is frequently a percentage of the amount you want to withdraw early.
Before leaving the building, understand exactly how your institution requires a request for early withdrawal. If possible, leave with copies of all required paperwork. Have the account manager fill in your account information while you watch.
Compare the cost of getting the money out early with the costs of other means of getting access to the same amounts, such as the interest rate on a line of credit.
Fill out any remaining pieces of paperwork and begin the withdrawal process, the specifics of which vary from institution to institution. If given the option, it's best to withdraw your money to another account via a wire transfer rather than getting a cashier's check.
If you withdraw money from a TSA before you turn 59 1/2, there are expensive tax ramifications. Tax law is complex and carries penalties for making mistakes. Consult with your accountant or financial adviser before deciding to withdraw funds from your TSA.