Surrendering Your Annuity Contract

If you want to surrender your annuity, you will face a surrender fee particularly if you surrender within the first seven to eight years of the annuity. The faster you surrender the more in fees you have to pay. For example, if you surrender in the second year, you will pay a lot more than if you had surrendered in the eighth year.

During the surrender period which lasts typically six to eight year after you purchase the annuity, if you sell or withdraw money from variable annuity you will have to pay a surrender charge. This surrender charge will reduce the value and the return on your investment. However you can switch your annuity contract for another type of annuity and while doing that you don't have to pay taxes. This is known as a 1035 exchange. You can exchange a life insurance policy for another policy, an annuity for another annuity or a life policy for an annuity. However, if you change an annuity for a life insurance policy, you will pay taxes on the gains made while under contract.

If you need money, some insurers can allow you to take a small portion of your investment - usually 10% to 15% -- especially in the cases of illness or disability. Once the annuitization period begins, you can take out as much as you want. You will be subjected to a 10% penalty tax for any withdrawals made before you reach 59 ½. Generally there are No Surrender and Surrender Fees clauses that refers your ability to surrender your annuity back to the issuing insurance company.

For investors who need any moment access to their money, there are annuities without surrender charges. These are no-surrender or level load annuities which have no penalty or charge for early withdrawal. However even with a no-surrender annuity investors under the age of 59 ½ are subject to a 10% federal excise tax as well as ordinary income taxes on any gains. These taxes or penalties can be avoided by making a 1035 tax free exchange to another annuity, regardless of the age of annuitant.