What Is a Surrender Charge on TSA?

Talk to your HR department if you have questions about an employer-sponsored TSA.

Talk to your HR department if you have questions about an employer-sponsored TSA.

You have different options to save for your retirement. You can participate in a 401(k) or 403(b) plan offered by your employer or contribute to a tax-sheltered annuity (TSA). Many 403(b) plans offer TSAs. Your TSA contributions are called premiums. With this option, you defer taxes until you withdraw the funds when you retire. However, sometimes your circumstances change. If you need to withdraw funds from your TSA, your insurance company may hit you with a surrender charge.

TSA Basics

A TSA is a variable annuity that allows you to save for your retirement in tax-deferred investments. Many tax-sheltered annuities are offered by state government entities or educational institutions as part of a 403(b) plan. These allow you to invest pre-tax dollars through payroll deductions. This means the money you contribute goes in before calculating your federal and state income taxes. In this way, your contributions to a TSA reduce your taxable income. With a tax-sheltered annuity, you can direct your contribution into one or more investments or mutual fund opportunities, similar to a 401(k).

Surrender Charge

A surrender charge is a fee you must pay if you withdraw money from or terminate your variable annuity during the "surrender period." The surrender period usually lasts for the first six to eight years after you purchase your annuity. Surrender charges reduce both the value of your annuity and your return on investment. “Surrender” also refers to turning in your policy upon termination, meaning that you give up or surrender your policy to your insurance provider in exchange for all the funds in your annuity.

TSA Surrender Charge

Your annuity provider typically calculates any surrender charge you must pay as a percentage of your TSA contract’s value when you withdraw more than a certain percentage of your TSA. Many TSAs allow you to withdraw a certain amount free of any surrender charges. That amount varies by provider, the length of time you’ve had your TSA and the total amount of funds you have in your TSA.


Your TSA has a 6-percent surrender charge for any partial surrender in excess of 10 percent of the contributions you made into your TSA. You contributed $50,000 in four years and withdraw $10,000 in year five, which equals 20 percent of your annuity. Your surrender charge will be 6 percent of $5,000, or $300. Your withdrawal will be $9,700.

Additional Costs

In addition to the surrender fees, which reduce the amount you receive upon withdrawal, you’ll have to pay state and federal taxes on your surrendered amounts. If you contribute money to your TSA using pre-tax dollars, you may incur significant penalties from the Internal Revenue Service for partial or full surrender.


About the Author

Tiffany C. Wright has been writing since 2007. She is a business owner, interim CEO and author of "Solving the Capital Equation: Financing Solutions for Small Businesses." Wright has helped companies obtain more than $31 million in financing. She holds a master's degree in finance and entrepreneurial management from the Wharton School of the University of Pennsylvania.

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