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How Can I Get Money From My Annuity Without Penalty
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Can I get my money out of an annuity without a surrender charge or penalty? Can you take all of your money out of an annuity? Yes, but it depends on the type.
There are many types of annuities. I know you hear the person out there going. I hate annuities; I hate them. You already own one; it’s called social security. Annuities also have a version of a CD. But there are many types of annuities that lead us to the question, “can I get all my money out of annuity without penalty?” It depends on the type because there are Single Premium Immediate Annuities, Deferred Income Annuities, Qualifying Longevity Annuity Contracts, Variable Annuities, Fixed Index Annuities, Multi-Year Guaranteed Annuities, Charitable Gifts Annuities. I can keep going. There are just bunches of them.
Penalty Free Annuity Withdrawals?
Some allow you to take money out without penalty if you go the full surrender charge. Still, sometimes they are what's called annuitization. That's income flowing forever. You can't get your money out with those because the money is flowing. Nod your head. Yes, but with other annuities like Deferred Annuities, Multi-Year Guaranteed Annuities, Fixed Index Annuities, Variable Annuities, and side notes, I don't sell Variable Annuities because I don't sell anything that goes down. Still, you can take all of your money out and your accumulation value out after the surrender charge period ends.
Taxation and the 59.5 Rule
Now, we're going to talk about taxation. I don’t give tax advice. I don't give tax advice at all. Get tax advice from a CPA or tax lawyer. But we digress. At what age can you take money out of annuity without penalty? We're not talking about surrender charges because surrender charges still apply. We're talking about age. We're talking about when you wake the IRS up. IRS is asleep at this one, and when you take money out at some particular age. So here it is. At age 59.5, again, we're not talking about the surrender charge. We're talking about your age; there are no penalties at age 59.5 or older, but before 59.5, the IRS is like, hello, we want our money. There’s a penalty for taking money out of an annuity.
This is because that money has been tax-deferred up until that point. They want you to hold onto it until you're at that retirement age post-59.5. The same applies to annuities, Multi-Year Guarantee Annuities, Index, Variable Annuities, and Deferred Type Annuities. In addition, the same applies to your IRA taking money out pre-59.5. Same rules you've been deferring all this time. The IRS and our beloved friends, the government, want you to defer past 59.5, and if you don't, if you shoot them the middle finger and say, "Hey, I want my money pre- 59.5."
Keeping in mind that 59.5 rule we just talked about, what is a free withdrawal on an annuity like a Multi-Year Guarantee Annuity, Fixed Indexed Annuity, Variable Annuity, those deferred type annuities, it's not always the same. Most of the time, it's 10 percent annually of the accumulation value, not all of them, though, some are 5 percent, and then some Multi-Year Guarantee Annuities don’t allow you to take money out. But the majority of these annuities and annuity types allow you to take out 10 percent of your money from the accumulation value, the real money from that account every year.
You''re setting yourself up a lifetime income guarantee, that income flow that will hit your account every month.
SPIAs and DIAs
Let's talk about the specific annuity types, and can you get your money out without penalty? I'm not going to go through the IRS thing again, the 59.5. You got that. I don't want to hit that anymore. Let's talk about the specific types, and can you get your money without penalties? We're going to go through them fairly quickly. A Single Premium Immediate Annuity is a pension type annuity. It is an annuitization type of annuity. You can't get your money back, or you can't get your money out.
The second one is Deferred Income Annuity, the sister product, brother product, or cousin product of the Immediate Annuity. It's an annuitization product. You are again ripping the knob off a water faucet. Annuitization income is flowing. You can't get your money out. Clear? One more time. A Qualified Longevity Annuity Contract. That's the newest annuity, created in 2014 to use inside your IRA as a pension and an annuitization product. Therefore, you can't get your money out of the product.
I'm being vociferous on those three because you need to understand when you transfer the risk for those lifetime income streams, for Immediate Annuities, Deferred Income Annuities, Qualified Longevity Annuity Contracts, you're setting up your pension. You're setting yourself up a lifetime income guarantee, that income flow that will hit your account every month. It's irrevocable, but that's a good thing.
MYGAs
Let's talk about the ones where you can get some money: Multi-Year Guaranteed Annuities, also known as the annuity version of a CD product. Now, the majority, not all, the majority will allow you to take out, say, either interest. You can just take out the interest, or with some, you can take the interests or 5 percent of the total accumulation value. Then some will allow you to take interest and up to 10 percent of the total accumulation value, and then some will say, "No, you can't take an interest, but you could just take the 10 percent." The other two Indexed Annuities with Fixed Index Annuities and Variable Annuities, both 99 percent of the time, allow you to take 10 percent annually of the accumulation value.
So what have we learned here? We've learned that you can't say you hate all annuities. We've learned that you can't say all annuities are the same because they're not when we're talking about taking money out without penalty.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.