Most types of annuities provide some form of withdrawal option, including immediate annuities and fixed annuities. Immediate annuities typically offer a choice between a lump-sum payment or regular payments that begin immediately and cannot be changed. Fixed annuities may offer a variety of withdrawal options, including a lump-sum payment, regular payments over a set period of time, or a lifetime income stream.

Whether you’re looking to make a one-time withdrawal or establish a systematic withdrawal schedule, we’ll provide you with the knowledge you need to make an informed decision.
For a comprehensive overview of annuities, read our article on How Do Annuities Work? to learn about the benefits, drawbacks, and different types available. Make sure to check it out after reading this article!
Table of contents
- What Types Of Annuities Allow Withdrawals?
- Can You Take Your Money Out Of An Annuity Without A Penalty?
- Why Are There Surrender Charges?
- Penalty-Free Withdrawals
- Systematic Annuity Withdrawals
- Accumulating Penalty-Free Withdrawals
- Return Of Premium Withdrawals
- Health-Related Waivers
- Annuity Bailout Provision
- Commutation Withdrawal Benefit
- When Can You Cash Out An Annuity?
- What Types Of Annuities Do Not Allow Withdrawals?
- Typical Annuity Payout Options
- Selecting The Payout On Your Annuity
What Types Of Annuities Allow Withdrawals?
Different types of annuities have varying features and benefits, including the ability to make withdrawals.
Generally, two types of annuities allow for withdrawals:
- Deferred Annuities: These annuities accumulate value over time, giving you the option to withdraw a portion of the money. There are two types of deferred annuities: Fixed and Variable.
- Immediate Annuities: These annuities provide regular payments that begin immediately after the contract is established. They may include a period-certain provision or a death benefit that can be accessed through a withdrawal.
Note: there may be penalties or surrender charges for withdrawing before a certain period, typically five to seven years. It is essential to review the contract carefully to understand the terms and conditions associated with each annuity.

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Can You Take Your Money Out Of An Annuity Without A Penalty?
When you withdraw money from an annuity before reaching age 59 1/2, you may be subject to a 10% early withdrawal penalty in addition to any taxes you owe on the distribution.
However, there are some exceptions to this rule, such as if you become disabled or need the money to pay for unreimbursed medical expenses that exceed a certain percentage of your adjusted gross income.
Why Are There Surrender Charges?
An annuity is a long-term contract between an individual and an insurance company, which guarantees regular income in the future.
One key feature of annuities is that they have a surrender period, which is a predetermined length of time during which the annuity cannot be terminated without incurring a penalty.
Withdrawals During The Surrender Period
The surrender period typically lasts between five and ten years, although it can be shorter or longer depending on the specific annuity. If you withdraw funds from the annuity during the surrender period, you will likely incur a surrender charge, which is a fee imposed by the insurance company to discourage early withdrawals.
The surrender charge is typically a percentage of the withdrawal amount, and the percentage decreases over time until it eventually reaches zero.
Withdrawals After The Surrender Period
Once the surrender period ends, you can typically withdraw money from the annuity without incurring a surrender charge. But you may still be subject to taxes and other fees, depending on the specific terms of the annuity and the timing of the withdrawal.
It’s important to carefully consider the tax implications of any annuity withdrawal, as taxes can significantly reduce the amount of money you receive.
Penalty-Free Withdrawals
Penalty-free withdrawals from an annuity can be an attractive feature for consumers who may need access to their funds. Some annuities may offer one or more penalty-free withdrawals, typically subject to certain conditions.
One common condition is that the withdrawal can only be made after a specific period, such as five or ten years after the annuity contract is signed. The amount of the withdrawal may be limited to a certain percentage of the original premium or the account value.
One type of penalty-free withdrawal that may be available is the withdrawal of the original premium. This means that the annuity holder can take out the amount of money they initially invested in the annuity without incurring any surrender charges or other penalties.
Any additional earnings or interest that have accrued in the annuity will still be subject to surrender charges or other fees if withdrawn before the end of the surrender period.
Another type of penalty-free withdrawal that may be offered is a free withdrawal of the account value. This allows the annuity holder to withdraw a certain percentage of the account value without penalty, which can be useful in case of unexpected expenses or emergencies.
Penalty-free withdrawals may not be available with all annuities, and even when they are, they may be subject to certain limitations or conditions.
Systematic Annuity Withdrawals
A systematic withdrawal is a fixed amount of money that an annuity holder can withdraw from their annuity account on a regular basis. The withdrawals are usually made on a monthly, quarterly, or annual basis, and they are calculated based on the account balance and the life expectancy of the annuity holder.
Accumulating Penalty-Free Withdrawals
Some annuity contracts offer the ability to accumulate penalty-free withdrawals over time. This means that an annuity holder can forego taking withdrawals for a certain period and then take them at a later date without incurring a surrender charge.
The accumulation of penalty-free withdrawals can be used as a form of emergency savings or as a way to provide additional retirement income.
Return Of Premium Withdrawals
Return of premium is a feature that is offered by some annuity contracts. It allows the annuity holder to receive their original premium back, minus any withdrawals or fees, if they decide to cancel the annuity before the end of the surrender period.
Return of premium can be a valuable feature for those who are concerned about committing their money to a long-term annuity contract.
Return Of Premium Vs. Accumulating Withdrawals
While return of premium and accumulating penalty-free withdrawals both provide annuity holders with access to their money without incurring a surrender charge, they differ in some important ways. Return of premium is a one-time option that can be exercised during the surrender period, while accumulating penalty-free withdrawals can be used multiple times and over a longer period.
Return of premium may result in the loss of any gains the annuity has earned, while accumulating penalty-free withdrawals may allow for continued growth of the annuity’s value.
Health-Related Waivers
Health-related waivers are provisions in annuity contracts that allow the annuitant to withdraw funds from their annuity without incurring any surrender charges or penalties due to a specific health-related condition.
There Are Two Common Types Of Health-related Waivers:
- Nursing Home Waivers: These waivers allow an annuitant to withdraw funds from their annuity without penalty if they require long-term care in a nursing home. The annuitant will need to provide documentation proving they meet the criteria for the waiver.
- Terminal Illness Waiver: This waiver allows an annuitant to withdraw funds from their annuity without penalty if they have a terminal illness that is expected to result in death within a specific time period, typically 12 to 24 months. The annuitant will need to provide documentation from a physician to support their claim.
Health-related waivers provide an important safety net for annuitants who may need to access their funds due to health-related issues. These waivers are not available on all annuity contracts and may have specific requirements that need to be met before they can be utilized.
Annuity Bailout Provision
An annuity bailout provision is a feature that allows an annuity holder to terminate their annuity contract early without incurring surrender charges if they experience a significant change in their financial situation, such as a job loss or disability.
Commutation Withdrawal Benefit
A commutation withdrawal benefit is a feature that allows an annuity holder to receive a lump-sum payment from their annuity instead of receiving regular annuity payments. The amount of the lump sum payment will depend on the terms of the annuity contract.
When Can You Cash Out An Annuity?
The ability to cash out an annuity depends on the specific terms of the contract. Generally, if you withdraw funds from an annuity before reaching age 59 1/2, you may be subject to a penalty.
Additionally, if you withdraw funds during the surrender period, you may also be subject to a surrender charge. However, some annuities offer penalty-free withdrawals under certain circumstances, such as for health-related issues or a specific number of free withdrawals.
It’s important to review the terms of the contract to understand the specific withdrawal options available to you.
What Types Of Annuities Do Not Allow Withdrawals?
While many annuities offer various withdrawal options to their contract holders, some types of annuities do not allow withdrawals. These annuity contracts are designed to provide a guaranteed stream of income for a specific period or a lifetime, and the principal is typically not accessible until the contract term ends.
One example of an annuity that does not allow withdrawals is an immediate annuity. With an immediate annuity, an individual pays a lump sum to an insurer, and the insurer guarantees a fixed stream of payments for a specific period or for life. Once the contract is initiated, the individual is unable to withdraw the principal or change the terms of the contract.
Another example of an annuity that does not allow withdrawals is a longevity annuity. A longevity annuity, also known as a deferred income annuity, is designed to provide a guaranteed income stream at a future date, usually after age 85. These contracts do not allow early withdrawals, and the principal is not accessible until the contract term begins.
Typical Annuity Payout Options
Death Benefit
This is a payout option that is available to the beneficiary upon the death of the annuitant. The beneficiary receives a lump-sum payment, a predetermined amount, or a series of payments over a specific period, depending on the terms of the annuity contract.
Fixed Amount (Systematic Withdrawal Schedule)
Under this payout option, the annuitant receives a fixed amount of money at regular intervals, such as monthly or annually. The amount is predetermined and does not change unless the annuitant chooses to change it.
Fixed Period (Period Certain)
This option provides a fixed income stream for a specific period, such as 10 or 20 years. If the annuitant dies before the end of the period, the payments will continue to the beneficiary until the end of the period.
Joint And Survivor Life
This payout option provides income to the annuitant and their spouse or partner for the rest of their lives. After the death of one annuitant, the surviving spouse or partner will continue to receive a portion of the income.
Life Only
This option provides income to the annuitant for the rest of their life. The payments will stop after the annuitant’s death, and there is no survivor benefit.
Life With Period Certain (Guaranteed Term)
This option guarantees a fixed income stream for the rest of the annuitant’s life or a minimum period, whichever is longer. If the annuitant dies before the end of the period, the beneficiary will receive the remaining payments.
Lump Sum Payment
This payout option provides a one-time payment to the annuitant. The amount is based on the account value of the annuity at the time of the payment. This option terminates the annuity contract, and no further payments are made.
Selecting The Payout On Your Annuity
Phases Of An Annuity
An annuity has two main phases: accumulation and payout. During the accumulation phase, the annuity owner makes premium payments to the insurance company, which invests the money and pays interest.
The annuity grows tax-deferred until the owner decides to begin taking payments. During the payout phase, the accumulated value is converted into regular income payments, either for a set period or for the rest of the annuitant’s life.
Annuity Payout Options
There are various payout options available to annuity owners, including life annuitization, joint-life annuitization, period certain annuitization, life with guaranteed term, systematic withdrawals, and lump-sum payment. Each option has its own advantages and disadvantages depending on the annuitant’s needs.
Monthly Payment Calculation
The monthly payment amount of an annuity is based on several factors, such as the premium paid, the age of the annuitant, the chosen payout option, and the annuity’s interest rate at the time of payout.
Annuity Payout Tax
Annuity payouts are subject to income tax, with the tax rate based on the annuitant’s income tax bracket. In addition, if the annuity was purchased with pre-tax dollars, the entire payout amount is subject to tax.
Credit Quality Concerns
When choosing an annuity, it is essential to consider the financial strength and credit quality of the insurance company offering the annuity. It is recommended to research the company’s credit ratings from reputable agencies like A.M. Best or Moody’s.
The Bottom Line
Selecting the right payout option is crucial when choosing an annuity. Each option has its benefits and drawbacks, so it is essential to consider the annuitant’s financial needs and goals. Additionally, it is crucial to research the financial strength and credit quality of the insurance company offering the annuity.
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