Rolling Over a Deferred Annuity: Tax Implications & Considerations

Many people purchase a deferred annuity in order to plan for retirement. However, at some point, many people want to roll over the funds from a deferred annuity into another type of account. Here are a few things to consider about doing this.

Taxes

When you cash out your deferred annuity, you are going to have to think about tax implications. The money that you pay into the annuity is allowed to grow tax-free until you reach the age of 59 1/2. If you surrender the annuity before that age, you are going to have to pay taxes on the amount. You will also have to pay a 10 percent early distribution penalty to the IRS.

Surrender Charges

In addition to having to pay taxes, you may have to worry about a surrender charge also. A surrender charge is a fee that you have to pay when you surrender your annuity early. Typically, you are going to have to pay some type of surrender charge if you surrender the annuity within the first six years of your contract. Sometimes, the surrender charges can apply for as long as 12 years. The charges get smaller as you stick with your annuity longer.