An annuity is an investment contract that allows people to secure their post-retirement life. An annuity contract allows people to make contributions towards their annuity accounts and then to receive the wholesome annuity amount (the amount that has been grown with time and as a result of the contributions) at the time of withdrawing the annuity. When to start withdrawing is a very important question for every annuity holder just like knowing about the income drawdown rates as well.
While the withdrawing phase is the most important part of every annuity plan, it might be a bit complicated to handle if not done at the right time. Withdrawing early would mean that the earning might be taxed as ordinary income and one would have to pay a penalty on it. Such penalty is an addition of ten per cent on the withdrawal to the IRS. The annuity holder would have to pay a fee, referred to as a surrender fee.
The surrender fee goes to the manager of the annuity holder who then deals with all the legal procedures that are required being carried out. So, if you are one of the individuals who don’t want to pay a penalty or an additional fee just to start withdrawing annuities, you should wait till you reach the age of 59. After you have reached the age of 59 or more, you can utilise one of the two ways to withdraw your money: via a partial or a total lump sum, without being required to pay a tax penalty.
Since most annuities charge surrender fee, you should make the right decision about when to withdraw your money. However, you should discuss your options with your annuity manager to find out if you are not bound to pay a penalty if you want to withdraw early. Make sure to know about the special cases as well where a surrender charge can be waived such as in the death situation, continuous confinement and so on.