To make an annuity withdrawal, you must request it from the insurance company that sold the annuity. The easiest way in most cases is to contact the agent who sold you the annuity; otherwise, you can contact the insurance company's nearest branch office, or its headquarters. Most insurance companies provide special forms for withdrawals, but you can usually request a withdrawal in writing without using their form.
When making an annuity withdrawal, it’s important to be aware of the withdrawal rules, which can be found both in the annuity contract and the accompanying paperwork. Most annuities impose a penalty, also called a surrender charge. This penalty is usually a percentage of the amount withdrawn, for any withdrawals made before the maturity date. These penalties are highest when the annuity is first created, and then decline, usually annually, until the maturity date. If the insurance company permits the annuity to remain in force after the maturity date, as some do, there’s no penalty on withdrawals after that date.
Some annuities permit penalty-free withdrawals, generally after the annuity’s been in force for a full year, and almost always limited to 10% of the annuity’s original principal amount. Thus, an annuity purchased for $100,000 that’s grown to $125,000 through compound interest will permit penalty-free withdrawals of $10,000 annually. Some annuities calculate the penalty-free withdrawal in different ways, though, making it important to know which type of annuity you have.
The reason for the withdrawal can be an important issue. Some annuities permit a penalty-free withdrawal for particular reasons in addition to the 10% annual penalty-free withdrawal. This second withdrawal is also usually capped at 10%. These second annual withdrawals are generally permitted only for specific reasons, most commonly to meet the costs of convalescent or long-term care. Most annuities restrict owners to a single penalty-free withdrawal per year, regardless of the amount, so if you take a 5% withdrawal, penalty-free, any further withdrawals during the year will be subject to the withdrawal penalty in their entirety.
When making an annuity withdrawal, then, calculate the total amount you’ll need, and figure out how much of that will be penalty-free. The amount left over will be subject to the penalty; that is, the insurance company will deduct the penalty from that amount, and then send you the balance. If you want your payment to be exactly the amount you need, you’ll need to request a withdrawal amount, determined by a calculation known as “grossing up,” that pays you the amount you need after the penalty has been deducted. Before finalizing the withdrawal request, it's a good idea to review the figures with the insurance company to be certain of your calculations and make sure the amount you'll be paid is the amount you're expecting.
You may generally request that the funds be issued to you in the form of a paper check or an electronic funds transfer (EFT) into your bank account. Before selecting either option, be aware of any charges associated with them; if the insurance company charges a high fee for an EFT, you may be more comfortable waiting a few days extra for a paper check and saving the money. In either case, expect to wait at least a few business days for your annuity withdrawal to be credited to your bank account.
