How to Liquidate an Annuity

Surrendering an annuity to meet short-term needs can be costly.
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Annuities are not the sexiest of investments. They're safe and stodgy and have higher operating costs, kind of like your grandfather's big old sedan. For some investors, an annuity is a useful vehicle for long-term retirement planning. However, if you've jumped into one without researching it properly, you might want to take your money back out at some point and reinvest it. It's an easy and straightforward process, but there are some financial pitfalls to be aware of.

Diligence

Step 1

Take out your annuity contract and read its surrender provisions. Most charge hefty surrender fees in the early years, but they dwindle over time. If you've held your annuity for 10 years or less, those fees should factor into your decision.

Step 2

Review your annuity's most recent statement and see how much profit it contains. The amount you've contributed isn't taxable, but everything else is. If you're younger than 59 1/2, you'll pay an extra 10 percent penalty to the IRS on that taxable amount.

Step 3

Do the math, and make sure you still want to withdraw the funds. You might find it more advantageous to keep the annuity intact.

Surrender

Step 1

Contact the company that issued your annuity contract and request surrender forms, or download them from the company's website if that option is available.

Step 2

Complete the forms. Some companies might require you to have the signatures witnessed as a protection against fraudulent surrenders.

Step 3

Submit your forms by registered mail or courier, or deliver them in person to one of the annuity company's offices. In most cases, you'll receive your check within a few weeks.

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