Wait until after age 59 1/2. As with many long-term retirement plans, including 401ks and IRAs, you cannot take what the IRS refers to as an "early distribution" from an annuity. Since an annuity is designed for retirement savings, the IRS will penalize you 10 percent of the amount you withdraw from an annuity before you reach age 59 1/2. You can avoid this early distribution penalty by not taking money out of your IRA until after age 59 1/2.
Keep your annuity until after the surrender period elapses. In addition to the early distribution penalty assessed by the IRS, your insurance company will charge you a "surrender charge" if you withdraw from your annuity before you have held it for a number of years. The particulars of the surrender charge vary from company to company. However, the typical insurance company will charge up to seven percent of the amount you take out of an annuity in the first few years after you buy the contract. The surrender charge usually falls by about one percent per year, until after seven or eight years it vanishes altogether.
Take partial withdrawals. Some insurance companies allow you to avoid the surrender penalty if you take out a limited amount of your annuity in any given year. Typically, an insurance company will allow you to take out up to 10 percent of your annuity in a year and still avoid the surrender fee. However, if you are under 59 1/2, you will still owe the IRS penalty, and no matter when you withdraw from your annuity you will generally owe at least some income taxes as well.