At first glance, "annuity start date" seems like a straightforward term: the day the annuity starts. But like most annuity concepts, things are not as simple upon closer look. After all, an annuity might start the day the contract is signed or the day any periodic distributions begin. The annuity start date actually refers to the scheduled date by which regular payments must start.
Before you can fully understand the term "annuity start date," you must first understand how your deferred annuity works. Deferred annuities are insurance products that promise a lifetime income stream at some point in the future. You put a sum of money in your annuity on what is referred to as the "contract inception date." From this date you have a surrender period of anywhere between one and 15 years during which you would have to pay a fee to take your money out. When the surrender period is over, you can remove your money without paying a fee, but you are not required to. The money that sits in the annuity grows tax-deferred, however, there is a date when you must begin receiving an income stream from your annuity.
When you receive your annuity contract, there will be a face page that lists the basic terms of the contract including the inception date, how long the surrender period is and the penalties associated with early distribution. One of the items defined on this page is the annuity start date. The date is usually a set time well in the future, often when the annuity owner is 80 years or older.
Getting Your Money
Many new annuity owners look at the annuity start date with trepidation fearing funds won't be accessible until well into the future. After all, an annuity start date might not be for 20 or more years beyond the inception date. This isn't the reality. Annuity owners can take money out at any time, even during the surrender period, though there there will be a penalty. Anytime you begin taking distributions from your annuity, you will have to pay taxes on the investment income. If you take distributions before age 59 1/2, the IRS also imposes a 10 percent penalty on top of any taxes owed (and on top of the issuing company's surrender fee if applicable). These penalties discourage early distributions but don't prevent them. In other words, the annuity start date is the date by which you must start receiving distributions, not the first date on which you are allowed to take distributions.
When buying a deferred annuity, think about your income needs and savings desires. The immediate concern is what you will earn on your investment. Another concern is determining how much you might need in emergencies during the surrender period and how much the annuity allows you to withdraw without surrender penalties. The annuity start date is based on your life expectancy through insurance company mortality tables and is not something that is negotiable.