Learn More about Annuity Withdrawals


Designed to add to the income of retirees, insurance companies offer and manage annuities. There are many companies offering wide ranging annuities. However, the rules for withdrawing funds from such accounts are almost the same for all such companies. If you intend investing in an annuity, you must review and understand the rules concerning annuity withdrawals.

Guaranteed Lifetime Income

The most common and helpful feature of all annuities is that you are guaranteed of getting funds for the rest of your life after retirement. Whatever kind of annuity you may decide to opt for, each of these gives you the option of switching your balance of funds to a stable flow of payment made to you every month. However, this process denies you the choice of utilizing the total funds accumulated in your account.


Funds getting acculturated in an annuity are not taxed till you decide to withdraw the same. However, you are taxed only on the amount of money that you withdraw from that annuity. The entire amount that is withdrawn from your annuity account is included in your total income of the year and taxed accordingly. Since annuities are considered as retirement funds, the rate of tax applicable on your annuity withdrawals is the normal rate of tax, meaning you are not required to pay any capital gains tax.

Surrender Charges

In most cases, you are necessarily required to keep your money in annuity account for a definite number of years. On withdrawing your funds prior to the specified period, you are required to pay penalty as surrender charge. Penalties are imposed only on annuity withdrawals taking place within the initial few years of having opened an account. The penalty to be paid varies from seven to ten percent and is inversely proportional to the number of years after which you withdraw from your account, meaning that you pay more penalties if you withdraw say after 3 years of having opened an account than if you were to withdraw after five years.

IRS Withdrawal Penalties

Apart from the penalties to be paid to the annuity provider for early withdrawal, you are also penalized by IRS if you withdraw from an annuity account before reaching an age of59 ½ years. The penalty to be paid to IRS for premature annuity withdrawals is ten percent of the amount that you may withdraw.


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