Annuity Loans: Benefits & Drawbacks - A Comprehensive Guide

Annuity loans are a type of product that allows you to borrow money from an annuity contract with your insurance company. Borrowing money from a retirement product like an annuity carries with it some advantages and disadvantages. Here are a few of the pros and cons of annuity loans.

Pros

One of the biggest advantages of getting an annuity loan is that you can get access to money without paying taxes on it. When you borrow the money, it does not count as a taxable distribution. 

Another benefit of this type of loan is that it usually carries with it a small interest rate. You will generally be able to borrow money from your annuity at a lower interest rate than you would be able to get with another loan product.

Cons

One of the disadvantages of this type of loan is that you will have to pay taxes on the money if you do not pay it back according to the terms of the loan. If you do not make your loan payments, the loan will be treated as a taxable distribution. This means that you will also have to pay a 10 percent early distribution penalty if you are younger than 59 1/2.