How to Surrender an Annuity

Annuities have their uses, but surrendering one can be very costly.

Annuities have their uses, but surrendering one can be very costly.

Some investments are like planting radishes: a few weeks later you've got your payoff, and can move on to something else. Others are more like planting an apple tree. They are long-term investments, and uprooting them to start fresh can be counterproductive. Annuities fall into the second category. They're a tax-sheltered product, intended for long-term investments and retirement income. You can withdraw or "surrender" some or all of the investment from your annuity in a time of need, but you'll probably pay a pretty heavy price.

Contact the company that issued your annuity contract and request any forms you'll need to surrender your annuity in whole or in part. They might mail them, or a representative might deliver them to answer your questions.

Review the company's surrender fees. They typically go down with each year you stay invested, much like the commission fees on a back-end loaded mutual fund. However, they can be very high in the early years: over 20 percent, in some cases.

Calculate the tax impact of your withdrawal. The money you take out becomes taxable income at your currently applicable rate for ordinary income. If you are below 59 1/2 in age, the IRS will charge a special tax amounting to 10 percent of the amount you withdraw.

Total the cost of surrendering your annuity, including both the issuing company's charges and the tax impact. If you need a set amount of money to meet a specific need, increase the withdrawal to offset these costs.

Submit the forms to your annuity company, if you still feel it to be in your best interest. Your annuity contract should explain how long this process takes.


  • Consider other options if the cost of surrendering your annuity is prohibitive. For example, some companies allow you to borrow against the annuity rather than surrendering it.
  • If the amounts involved are large, or if you're uncertain how surrendering the annuity will affect your tax situation, get professional advice before proceeding with these actions.

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About the Author

Fred Decker is a trained chef and certified food-safety trainer. Decker wrote for the Saint John, New Brunswick Telegraph-Journal, and has been published in Canada's Hospitality and Foodservice magazine. He's held positions selling computers, insurance and mutual funds, and was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.

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