What if I decide to withdraw the money before the annuity matures?


If you decide to withdraw the money (or surrender the annuity), then you will have to pay not just regular income tax (based on your interest or investment income) but also an early withdrawal penalty. In this case, the original principal amount is deducted from the total amount and will not be taxed.  For the tax penalty, you will be charged 10% of the taxable amount, unless you are already 59 ½ years old.

Depending on your annuity contract, you may also have to face surrender penalties charged by the insurance company. This is amount is around 7% of the money you withdraw, but will be scaled down if you withdraw on a later date.

It is best to read the terms and conditions of your annuity contract for you to see just how much penalties and additional taxes you will have to pay. Then you might realize that your money is better off staying where it is.

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