Financial institutions offer many plans that provide coverage for all manner of situations. These can be used for retirement purposes, though sometimes you’ll need to access the funds before it’s time to collect.
Early withdrawal can have financial consequences, so how can you avoid them?
What is an Annuity Surrender Charge?
The money within the annuity contract is meant to be saved and distributed at specified intervals determined within the contract.
However, life doesn’t always go as planned. While these contracts bind insurance companies to periodic payments, sometimes you need finances sooner.
A surrender charge is a penalty for withdrawing funds from an annuity contract early. You can also acquire the charge by canceling your contract. These charges can be costly, and they can be completely avoided with a bit of planning.
How to Avoid an Annuity Surrender Charge
Initially, you can look for policies that don’t include surrender charges or policies that have more flexibility in them. The trade-off is that you may need to pay higher premiums for the life of the contract.
To avoid the surrender charges altogether, it’s worth looking at policies that you can have more liquidity. Keep in mind that the benefits should outweigh the lack of flexibility when shopping around.
How Much Can You Withdraw from an Annuity Without Incurring Charges?
If you need to withdraw funding, you can usually withdraw up to ten percent before fees are incurred, giving you a bit of room to plan your finances. Once you’re past the age of 59 ½ years old, you can avoid the IRS penalty tax altogether.
Depending on how much your plan is worth, the fees can range from inconsequential to devastating. It’s worth contacting a professional to discuss your options before making any decisions final.
Are There Waivers for Surrender Charges?
Yes! Several circumstances will waive surrender charges if you need to withdraw from an annuity. These circumstances include the cost of care for the policyholder’s death, disability, or terminal illness.
Long-term care and college expenses for children also waive the surrender charges with the appropriate documentation. It’s worth examining your policy and discussing your options with a professional so that you can access your money and use it as needed to set you and your family up for success.
Final Thoughts Annuity Surrender Charges
Overall, no one likes surrender charges. Life is unpredictable, and you may need to plan around emergencies or access funding early. While there are waivers to dismiss fees, it’s also a good idea to speak with a professional about your benefits for exact details in your policy.
No matter what life throws at you, be prepared to handle it in stride.
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