4 Ways to Get Out of a Variable Annuity
Variable annuities can be a complex financial product that many investors purchase with the intention of securing retirement income. However, circumstances change, and you may find yourself wanting to exit your variable annuity for various reasons, such as high fees, market performance, or changing financial needs. If you’re considering getting out of a variable annuity, here are four ways to do so:
1. Surrender the Annuity
Surrendering your variable annuity means that you’re opting to cash it out entirely. While this option is straightforward, it’s essential to understand the implications:
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Surrender Charges: Most variable annuities come with surrender charges, which are fees for withdrawing funds within a specific time frame (usually the first several years). These charges can be significant, often ranging from 5% to 10% of the investment amount, tapering down over the surrender period.
- Tax Implications: If the variable annuity is funded with pre-tax dollars (like those from a traditional IRA), you will owe taxes on any gains when you surrender it. Additionally, if you are under the age of 59½, you might incur a 10% early withdrawal penalty on taxable amounts.
Before deciding to surrender, consider whether the immediate access to cash outweighs the costs you may incur.
2. 1035 Exchange to Another Annuity or Investment
A 1035 Exchange allows you to transfer your variable annuity to another annuity without incurring immediate tax liabilities. This method can provide a way to exit your current annuity while avoiding surrender charges and taxes, as long as the funds go directly from one insurer to another.
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Finding a Better Fit: If you are seeking lower fees or better investment options, a 1035 Exchange could help you move into a more suitable product. For example, you might want to switch from a variable annuity to a fixed indexed annuity that offers more stability and less risk.
- Consulting a Professional: It’s advisable to consult with a financial advisor to ensure that the new investment aligns with your financial goals and that you understand all the fees involved in the new product.
3. Partial Withdrawals
If you don’t want to exit the annuity entirely but would like to access some of your funds, consider making partial withdrawals.
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Understanding the Limits: Most variable annuities allow you to withdraw a certain percentage of your account value annually without triggering surrender charges. Familiarize yourself with the terms of your contract to understand withdrawal limits and any potential impacts on your future income.
- Tax Considerations: Similar to surrendering, partial withdrawals are subject to income tax on any gains, so plan your withdrawals accordingly to minimize tax liabilities.
4. Reconnect with Your Financial Goals
Sometimes, the urge to exit a variable annuity arises from dissatisfaction with performance or fees, but it may be beneficial to re-evaluate your long-term financial plan before making a decision.
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Review Your Investment Strategy: Engage with your financial planner to assess whether your current variable annuity still aligns with your retirement goals. Discuss possible re-allocations within the annuity to better match your risk tolerance and investment horizon.
- Exploring Alternatives: If your concerns center around high fees or market volatility, your advisor might suggest modifying your investment strategy or reallocating funds within the annuity. This could help you stay invested while mitigating risks associated with your current investment.
Conclusion
Exiting a variable annuity can be a complex process with several considerations, including fees, tax implications, and your long-term financial strategy. Whether you choose to surrender the annuity, initiate a 1035 Exchange, make partial withdrawals, or reassess your goals, it’s crucial to understand the consequences of each option. Consulting with a financial advisor will provide personalized guidance based on your unique situation and help you make an informed decision that aligns with your financial goals.
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Can you transfer it to a brokerage account? assuming it's non qualified?
No. 5?: Move your VA assets into the fixed-rate option. We're making 3% guaranteed, and most of the fees went away. (They still charge the income-protection fee even though it is now of no benefit).
Also, my 89 yo mother has a VA within her IRA–thanks to her commission-based "advisor"–which I believe is set to annuitize at age 90. Is it possible to cash out while keeping those funds in the IRA?
4 Ways To Get Out of a Variable Annuity
Don't get into one.
Hi! I'm 56 and inherited a Variable Rate Annuity which has been annuitized and pays until 2028. I wanted to cash out but Fidelity says I can't. They also told me I can't designate a Beneficiary! I'm concerned the Stock Market is about to crash and then my annuity will disappear! Is there any way to get out of it and control the rest of the money myself? So confusing!
I got the good old Northwestern Mutual GOTCHA back in 2008. like $25,000.. Its actually up to 50k now but geez… i sure would have like to have had that money to invest back then.
Great info!!!! I’m 57 1/2 and want to roll over my annuity to a place where I can control it’s investment allocations without crazy fees/ commissions. I’ve had it 25 years so no surrender charges. It’s a Non Qualified account. Can I still get out without paying fees? I don’t need the money I want to put it into growth funds. Can I do this without paying capital gains? Thanks so much!!
Thanks for the info man!