Can You Withdraw Money From an Annuity Without Charges or Penalties?
An annuity is a tax-deferred product that can help you save for retirement, and has the potential to help your money grow over time. Many annuities include a surrender period — often lasting three to 10 years — when withdrawals may be limited or subject to charges and other fees.
But what if you need access to your money sooner for unexpected expenses, a major purchase, retirement income, or health-related needs?
Can you withdraw money from your annuity without penalties or fees?
Yes, most annuities offer ways to access your money, but there are important rules and potential fees, expenses, and charges to understand.
These typically depend on:
- How long you've owned the annuity
- How much you withdraw
- The terms of the specific product you purchased
Key things to know about withdrawing money from an annuity:
- Many annuities allow you to withdraw up to 10% of your accumulation value without withdrawal charges, also known as surrender charges, often starting in year 2.
- Withdrawals taken early in the contract period or above any free withdrawal amount may be subject to withdrawal charges and a Market Value Adjustment (MVA).
- Some annuities offer waivers for qualifying terminal illness or injury, chronic illness, or nursing home care after the first year, depending on state availability.
- Withdrawals before age 59½ may be subject to a 10% IRS penalty unless an exception applies.
Can I withdraw any money without penalty?
Yes. Many annuities allow you to take a free withdrawal of 10% of your accumulation value each year, if permitted by the IRS. This free withdrawal often starts in year 2, as is the case for annuities issued by the companies of National Life Group.
What if I have a medical emergency? Can I take money out of my annuity without penalty?
Yes, for qualifying medical needs if your annuity comes with riders that allow such access.
Annuities issued by the companies of National Life Group may come with riders that allow access to funds for extra flexibility, when you have a qualifying terminal illness or injury, chronic illness, or a qualifying need for nursing care, depending on state availability.
These riders, available at no additional cost, waive withdrawal charges, bonus recapture amounts, and MVAs, if you are eligible, starting in year 2.
If you already have an annuity issued by the companies of National Life Group, see your policy for full details. Benefits may depend on when your annuity was issued and on state availability.
Nursing Care Rider
Benefits may be available if you require qualified home health care for at least 30 consecutive days or have a medically necessary qualified stay of at least 90 consecutive days in a:
- Nursing home
- Hospital
- Skilled nursing facility
- Intermediate care facility
- Residential care facility
Terminal Illness Rider
Benefits may be available if you are diagnosed with a terminal illness or injury expected to result in death within 12 months, as certified in writing by a U.S.-based physician.
Chronic Illness Rider
Benefits may be available if you are certified by a U.S.-based health care professional as chronically ill, defined as the inability to perform at least two Activities of Daily Living for 90 consecutive days due to permanent loss of functional capacity or requiring substantial supervision for 90 days due to severe cognitive impairment.
Emergency Access Waiver*
Benefits may be available for distributions that meet plan and IRS requirements, including plan-approved hardship or unforeseen emergency, separation from service, and disability. Available with 403(b) or 457(b) retirement plans.
For separation from service or disability, these limits apply:
- Up to 20% of accumulated value in years 2–4
- Up to 100% of accumulated value in year 5 and beyond
Will my beneficiaries have to pay any withdrawal charges if I die while the policy is still in place?
If you die before using the full value of your annuity, your named beneficiary will receive the remaining balance according to your policy terms. Withdrawal charges do not apply to the death benefit. Beneficiaries may still owe income taxes on any gains in the annuity.
What if I just want to surrender my policy or take money from my annuity and these circumstances don’t apply? What charges may apply?
If you take withdrawals that exceed any available free withdrawal amount, or fully surrender your annuity during the surrender period, the following may apply:
- Withdrawal charges
- Bonus recapture charges, if your annuity includes a premium bonus and you withdraw funds early
- A Market Value Adjustment (MVA), which may increase or decrease the amount you receive depending on interest rate changes
How long is the surrender period for an annuity?
- The surrender period is the length of time during which withdrawals may be subject to withdrawal charges. It varies by product but typically ranges from three to 10 years.
- During this period, you may still be able to take limited withdrawals without charges, depending on the product and circumstances. Once the surrender period ends, you can generally access your funds without withdrawal charges.
What are withdrawal charges?
A withdrawal charge is a fee an insurance company may apply if you withdraw money from an annuity during the surrender period, especially if you take out more than any allowed free withdrawal amount or fully surrender the contract.
These charges typically decrease each year over the length of the surrender period.
What are surrender charges?
A surrender charge is another term that is used to describe withdrawal charges.
What’s the difference between a partial withdrawal and a full surrender?
A partial withdrawal means taking out a portion of your annuity’s value while keeping the policy in force. A full surrender means withdrawing the entire value of the annuity and terminating the policy.
Both types of withdrawals may be subject to withdrawal charges, taxes, or other adjustments if they occur during the surrender period or exceed any available free withdrawal amount.
How much are the withdrawal charges?
The exact charges depend on the annuity and typically decline each year over the surrender period, often reaching 0% by the end of that period.
For example, here are withdrawal charges for a fixed indexed annuity. The same charges will generally apply when you fully surrender your policy.
| Policy year | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
|---|---|---|---|---|---|---|---|---|---|---|
| 5-year policies | 8.25% | 8% | 7% | 6% | 5% | 0% | 0% | 0% | 0% | 0% |
| 7-year policies | 8.25% | 8% | 7% | 6% | 5% | 4% | 3% | 0% | 0% | 0% |
| 10-year policies | 8.25% | 8% | 7% | 6% | 5% | 4% | 3% | 2% | 1% | 0% |
And here are the charges for a fixed annuity:
| Policy year | 1 | 2 | 3 | 4+ |
|---|---|---|---|---|
| Charge | 7% | 7% | 7% | 0% |
| Policy year | 1 | 2 | 3 | 4 | 5 | 6+ |
|---|---|---|---|---|---|---|
| Charge | 7% | 7% | 7% | 6% | 5% | 0% |
Charges are set at the time of issue and will not change after your policy is issued. See your policy for full details.
What is a bonus recapture charge?
A bonus recapture charge may apply if your annuity includes a premium bonus and you withdraw money or surrender the contract early. In this case, all or a portion of the bonus previously credited to your annuity may be recaptured, or taken back, by the insurance company.
For example, an annuity could offer a premium bonus to increase income potential. If a bonus is credited at issue, it may be subject to recapture if withdrawals are taken above any allowed amount or if the policy is surrendered during the surrender period.
| Policy year | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
|---|---|---|---|---|---|---|---|
| Bonus recapture | 90% | 80% | 70% | 60% | 50% | 40% | 30% |
Charges and bonus amounts are set at issue and will not change after your policy is issued.
What is a Market Value Adjustment (MVA)?
An MVA is an adjustment that may increase or decrease the amount you receive if you take withdrawals above any free withdrawal amount during the MVA period.
The MVA is based on the difference between a reference index and the rate when you purchased the annuity. If interest rates have decreased, the MVA increases the amount you receive. If interest rates have increased, the MVA reduces the amount you receive.
The impact of an MVA is typically greater earlier in the surrender or guarantee period. It applies only to the portion of the withdrawal subject to surrender charges, not to your full account value.
See your policy for full details.
Note: MVA provisions may vary by state and product. For example, currently in California, for 10-year policies, the Market Value Adjustment only applies during the first seven policy years.
Can I lose money if I withdraw from my annuity early?
Yes, it’s possible. If you take money out of your annuity during the surrender period or above any available free withdrawal amount, you may be subject to withdrawal charges, a Market Value Adjustment (MVA), or bonus recapture.
In addition, withdrawing funds early may reduce your account value and any future income or benefits available under your annuity.
Does taking withdrawals affect my future income?
It can. Withdrawals reduce your annuity’s accumulation value, which may impact potential future growth and, in some cases, the amount of income you could receive.
If your annuity includes a guaranteed lifetime withdrawal benefit (GLWB) rider, withdrawals may reduce your future income payments.
Why can’t I just withdraw money from my annuity without charges?
Annuities are designed for long-term needs and aren’t meant as a short-term solution. Withdrawals are limited so the company can keep enough money in the annuity to provide the potential for growth and a guaranteed income stream in later years.
What if I have an income annuity? Do these charges apply to the income I receive?
Income annuities like Income Driver, Zenith Income, and Flex Select Income offer a Guaranteed Lifetime Withdrawal Benefit (GLWB) rider, which is designed to provide a guaranteed stream of income for life, subject to the claims-paying ability of the issuing insurance company.
With a GLWB, you can receive income payments for as long as you live, even if your accumulation value drops to $0, provided withdrawals are taken in accordance with the rider’s terms.
Withdrawal charges, bonus recapture charges, and MVAs do not apply to income received through the GLWB rider.
Will I pay taxes when I withdraw money from my annuity?
Yes. The tax treatment depends on how your annuity was funded.
- For annuities held within tax-deferred retirement accounts, such as traditional IRAs, withdrawals are generally taxed as ordinary income.
- For annuities purchased with after-tax, non-qualified funds, withdrawals are taxed as ordinary income only on any earnings.
In addition, withdrawals taken before age 59½ may be subject to a 10% IRS penalty on earnings, unless an IRS exception applies.
Because tax rules can be complex, consider consulting a tax advisor.
Buying an annuity within an IRA or other tax-deferred retirement plan does not offer extra tax benefits. If you are considering an annuity within a retirement plan, focus on its features, benefits, risks, and costs; annuities can come with extra fees and costs that other tax-qualified options in a retirement plan may not have.
Do I get taxed on the earnings every year?
No. Earnings in an annuity grow tax-deferred, which means you do not pay taxes on gains each year. Instead, taxes are generally due only when earnings are withdrawn.
How much time do I have at the end of the term to roll over or surrender the policy?
Annuities issued by the companies of National Life Group generally allow you to surrender or roll over your policy at any time, although withdrawals or surrenders during the surrender period may be subject to charges.
These policies do not automatically renew into a new surrender period.
This differs from some annuities that include a specific window at the end of the surrender period, often 30 to 60 days, during which you can withdraw or transfer funds without withdrawal charges.
For example, if you have a 10-year annuity issued by the companies of National Life Group, once the surrender period ends, you can roll the money into a new annuity, leave the funds in place, withdraw funds, or surrender the policy without withdrawal charges.
If your annuity includes a lifetime income feature and you are receiving income payments, surrendering the policy would typically end those payments, which may be an important factor to consider.
What else do I need to know about withdrawing money from an annuity?
Here are a few more things that are good to know:
- Withdrawals are generally permanent and cannot be returned to the annuity, and they will reduce your policy value and any future benefits.
- You may be able to set up automatic withdrawals to take out money on a regular basis, using systematic withdrawals for your future retirement income.
- If you have set up systematic withdrawals or you receive lifetime income, you can often adjust, pause, or stop them. See your policy for details.
- Systematic withdrawals may not be allowed if you use a waiver rider, like the Nursing Care Rider available with annuities issued by the companies of National Life Group.
- If your annuity is held within an employer-sponsored retirement plan, such as a 403(b) or 457(b), you may be able to take a plan loan, if permitted by the plan. Loans are subject to IRS rules, plan provisions, and repayment requirements.
Watch this video to learn more about annuities
Next steps
- Learn more about annuities issued by the companies of National Life Group.
- Work with your agent or a financial/tax professional to learn if annuities are a good fit for your retirement, and to ask further questions about potential annuity withdrawals.
A fixed indexed annuity (FIA) is a type of annuity that offers growth or income potential based on the performance of a specified market index, while helping protect your money from market declines. Indexed annuities do not directly participate in the market, market indexes, or any stock or equity investments. Guarantees are dependent upon the claims-paying ability of the issuing company.
See your policy for full details about withdrawal charges, bonus recapture, and the Market Value Adjustment (MVA). Withdrawal charges will be deducted and a MVA will apply to withdrawals over the penalty-free withdrawal amount for the first 10 policy years. The MVA may be a positive or negative adjustment. Early withdrawals of taxable amounts from an annuity are subject to ordinary income tax, and, if taken before age 59 1/2, may be subject to a 10% IRS penalty. Some states impose a premium tax on annuities. This tax may be applied at the time of purchase, upon withdrawal, or when income payments begin. If applicable, the tax may be deducted from your policy benefits. Oregon does not charge a premium tax on annuities.
An indexed annuity's 0% floor ensures that if index growth is negative during a crediting period, the interest credited to that strategy will not be less than 0%. This helps protect your premiums and any interest already credited from market declines. However, rider charges will still be deducted, even if no interest is credited.
The Guaranteed Lifetime Withdrawal Benefit (GLWB) rider has an annual charge of 1% of the accumulation value. Guaranteed Withdrawal Payments reduce the policy's accumulated value, but you will continue to receive these payments during your lifetime - even if your accumulation value declines to zero. Guaranteed lifetime income may be provided either by annuitizing an annuity, or through purchasing an annuity with an income rider.
If available in your state, the nursing care, terminal illness, and chronic illness waiver riders may provide access to a portion of your accumulation value without penalty, starting in year 2. See your policy for qualifying events.
*The Emergency Access Waiver will waive some or all withdrawal charges, MVA, and bonus recapture for 403(b) hardship or 457(b) unforeseen emergency distributions, or separation from service, paid directly to the annuitant. The benefits under this Rider are not available for transfers, exchanges, and rollovers. 403(b) hardship or 457(b) unforeseen emergency distributions must be approved by the Plan/TPA and will have all penalties waived. For separation from service or disability, withdrawals up to 20% of the accumulation value in years 2-4, and all withdrawals starting in year 5, do not incur any penalties. To use this waiver, the policy must have been in force for at least one year. At the time of the withdrawal, the policy must qualify under Internal Revenue Code Section 403(b) or 457(b). See your policy for full details.
TC8963798(0626)3