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Is there a penalty for withdrawing from an annuity?




The insurer issuing the annuity charges surrenders fees if funds are withdrawn during the annuity's accumulation phase. The IRS charges a 10% early withdrawal penalty if the annuity-holder is under the age of 59½.
Annuity withdrawals made before you reach age 59½ are typically subject to a 10% early withdrawal penalty tax.

What is the penalty for withdrawing money from an annuity early?

Typically, you face a 10% tax on any money you withdraw early. You also have to pay the ordinary income taxes, which were deferred to that point, on the withdrawn money. 1  However, the IRS grants exemptions to the penalty, including if you are buying or building your first home and borrow from an annuity for the down payment.

What happens to annuity withdrawals?

Upon a withdrawal, the money will be taxed as income if you purchased the annuity with pre-tax funds. If you purchased the annuity with post-tax funds, you would only pay tax on the earnings. A beneficial reason to buy annuities is that they can grow tax-deferred in the accumulation phase.

What is a penalty-free withdrawal in a deferred annuity?

A penalty-free withdrawal in a deferred annuity is a specific percentage an annuity owner can pocket from the savings without incurring a withdrawal charge. The withdrawal percentage varies by contract, but 10% of the total annuity value seems to be the standard amount of income liquidated each year.







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