Sell Your Annuity MRR Ebook

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Chapter 17 – Cashing Out Your Annuity

Saving money gives you a good feeling and watching it grow is even in some ways fun. It is amazing the way it makes you feel when you know you have a certain amount to fall back on. Just knowing it is there gives you a feeling of security.

Cashing out stocks, bonds, or mutual funds is easier than cashing out an annuity. At one time, if you were already receiving payments from your annuity you were not able to cash it out you were basically stuck with it. Laws have changed since then. Now it is possible for people to cash out their annuities in order to receive a lump sum.

However there are several good reasons to keep your annuities intact and not cash them out. You need to look at the dates of your payments closely. Just as an example, if you have an annuity, which will pay you $100,000 in 2015, you can bet you are not going to be able to get that amount of money when you cash it out now. If you try, you will be lucky to get one-quarter of the amount you would get after the payment date. If you haven’t had your annuity very long, it is not worth as much money as it will be later on in the future.

This is a serious consideration. When you cash your annuity out early, chances are good you will lose almost half of the amount you have in the account. You really need to ask yourself “is it worth losing that much money?” It is a good idea for you to look for the additional money you need in another source. Other than a major medical emergency or another crisis, it can be easy to sacrifice the short-term gain at the expense of long-term financial security. Just make sure what you are getting the money for is worth what you will lose.

When cashing out your annuity, you will want to make sure you read the fine print. Usually there will be charges when you cash out early you may not have planned on. If you are under the age of 59 ½ you will pay an additional 10% tax penalty added with the normal amount of income tax you will have to pay because you received the money. Buying another annuity will not help you any because you have received the cash in your hands, so the taxes still stand.

You do have other options to cashing out your annuity early. You can exchange your annuity for an annuity with fewer payments, so the payments will be larger. With a Section 1035 Exchange you will not pay any taxes. However this does not work for the person with a need for a large sum of ready cash.

Many people have used their annuities to help them obtain a loan. This could be an option for the person with the cash flow problem. Another option could be to read your annuity contract especially the fine print, there may be waivers you will be able to take advantage of, which will eliminate the tax penalty. Some annuities will allow for withdrawals in the case of a serious illness or other situations. Take to the insurance company with whom you have the annuity. They may be able to help you come up with solutions to your problem. It never hurts to ask.

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