With or Without Withdrawal Penalties

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Withdrawal Penalties

After choosing between immediate or deferred and fixed or variable, you need to determine your annuity’s liquidity option.

With Withdrawal Penalties

Annuities generally impose a penalty for making withdrawals of more than the annual limit during the surrender period. This surrender charge decreases by a percentage point every year.

The free withdrawal amount you can take out per year can either be your interest earnings or up to 15% of your investment. A surrender charge of 7% is typically applied to your account balance if you go over the limit. Depending on the annuity’s terms, the surrender charge becomes smaller over time.

Many annuities offer a bonus to compensate for this withdrawal penalty. Learn more about bonus annuities.

Without Withdrawal Penalties

Some annuities do not have a surrender charge for early withdrawals. However, these no-surrender annuities may sometimes have higher fees compared to those with withdrawal penalties.

No-surrender or level-load annuities do not penalize you for withdrawing above the typical 15% or even if you surrender the contract. Note that if you’re under 59 years old, you can still be charged with a 10% federal excise tax plus normal income tax on the amount withdrawn. This can be avoided through a 1035 Tax-Free Exchange to another annuity.

Make sure to ask your agent for no-surrender annuities as they may not volunteer these products due to lower commissions.

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