Key Takeaways

  • You can get a lump sum of money from an annuity by cashing it out or by selling the payments.
  • Most deferred annuities can be cashed out as long as you haven’t started receiving payments.
  • Annuities you can cash out include variable annuities, fixed annuities and fixed index annuities.
  • Ways to cash out an annuity include withdrawal, loan, return of premium, surrender and with a crisis waiver.
  • Cashing out an annuity has pros — access to immediate cash and potential tax advantages — but also cons including surrender charges, taxes, penalties and loss of future income stream.

Can You Cash Out an Annuity?

There are two main ways you may be able to get a lump sum of money from an annuity: by cashing out the annuity or selling future payments you receive from it.

You can usually cash out — or withdraw money from — most deferred annuities so long as you have not started receiving payments from one. 

But you typically can’t withdraw from certain other types of annuities including immediate, deferred income or qualified longevity annuities or from deferred annuities that are annuitized.

Annuities You Can Cash Out

Typically, you can withdraw money from certain deferred annuities. These are annuities that you pay into over a period of time and begin distributing payments at the end of that period — typically 10 to 30 years. 

Types of Deferred Annuities You Can Cash Out

Variable Annuities 
A variable annuity is a contract with an insurance company that is a type of investment account that can be converted into a stream of payments in the future, according to the Securities and Exchange Commission. You invest your money in different options and your return is variable, based on how the market performs.
Fixed Annuities
A fixed annuity is a deferred annuity that guarantees a fixed rate of return on your contributions at a specific point in the future.
Fixed Index Annuities
A fixed index annuity — or simply, indexed annuity — provides a rate of return on your contributions based on the performance of a market index, such as the S&P 500. They feature a guaranteed minimum interest rate.
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Annuities You Can’t Cash Out

Some annuities cannot be cashed out because of the way they are structured. These include annuities in tax-qualified retirement plans and straight-life annuities, which stop paying out at the annuitant’s death. These cannot be cashed out because the number of payments is not guaranteed.

Types of Annuities You Can’t Cash Out

Annuitized Contracts
An annuitized contract is the point at which your deferred annuity begins issuing regular payments. At this point, your annuity can not be cashed out until the annuitant’s death.
Deferred Income Annuities
An income annuity converts your premium payments into a fixed monthly income that is guaranteed for life. A deferred income annuity is a specific type of income annuity that lets you determine a future date when the income stream begins, according to FINRA. You can not cash out a deferred income annuity until you retire.
Immediate Annuities
A single premium immediate annuity (SPIA) — or simply, immediate annuity — is purchased with a lump sum of cash and begins relatively immediate payments. It can’t be cashed out until the annuitant’s death.
Medicaid-Compliant Annuities
A Medicaid-compliant annuity allows you to lower the value of your assets, so one spouse can qualify for Medicaid coverage while the other spouse can draw income from the annuity. Cashing out a Medicaid annuity would defeat the purpose of its structure.
QLAC (Qualified Longevity Annuity Contracts)
Qualified longevity annuity contracts provide tax advantages and the ability to put off required minimum distributions (RMDs) from your retirement accounts until an age specified in your annuity contract. 

Getting Cash Now: Ways To Cash Out Your Annuity

There are several other ways to cash out an annuity. Some may require riders or other provisions beyond the standard annuity contract. Some are also limited to certain types of annuities. 

Annuity Cash Out Methods

You can withdraw cash from most fixed, variable and indexed annuities at any time but be prepared to pay surrender charges, taxes and penalties.
If you have a fixed annuity, you can take out a loan using the cash value of your annuity as collateral. This is typically not an option for other types of annuities.
Return of Premium
Return of premium is an option that allows you to cancel your annuity and get back all the money you paid into it. You will not receive any interest or other earnings the annuity has built up.
If you have a fixed or variable annuity, you can surrender the annuity for its cash value. This is effectively canceling the annuity contract and is typically not an option for other types of annuities.
Crisis Waiver
A crisis waiver allows you to cash in your annuity without surrender charges if that annuity owner enters long-term care, becomes disabled, dies or faces some other life-altering crisis. These waivers are similar to riders and may be an add-on to the standard annuity contract for which you have to pay extra.

Read More: Reasons for Selling Your Structured Settlement

I often advise individuals considering selling their structured settlements to carefully evaluate their financial needs, goals, and alternatives before making a decision. It’s crucial to fully understand the terms of the sale, including any associated fees or costs, and to work with reputable professionals who can provide objective guidance and support throughout the process.

How To Cash Out an Annuity

Before deciding whether to cash out an annuity, you need to determine whether it is the best option you have for immediate cash. Consulting a professional financial advisor may help you make the best decision for your situation.

Beyond that, there are just a few steps in the process of cashing out an annuity.

6 Steps To Cashing Out an Annuity

1. Review Your Annuity Contract
Determine if your annuity allows you to cash out. Make sure you understand any restrictions, limitations or other penalties. Check to see if you are out of the surrender period — typically six to eight years according to the U.S. Securities and Exchange Commission. Consider any riders that may allow you to withdraw the amount of cash you need without penalties.
2. Consider Potential Penalties and Fees
Determine the cost of cashing out. The idea of leaving money in an investment is to allow it to grow over time. Consider how much value you will lose to possible surrender charges, taxes and penalties.
3. Evaluate Your Tax Implications
Talk with a tax professional about the tax implications of cashing out. Determine how much you will have to pay for gains on the annuity’s value, the difference between the principle and interest and how much your tax liability will be for each.
4. Contact Your Annuity Provider
Talk with your agent or the provider’s customer service department. Find out what information you need to provide, and ask your annuity provider for a surrender form.
5. Initiate the Cash-Out Process
Fill out and submit your surrender form with any other documents the provider requires. The surrender form varies by provider but lets you provide information, describe the type and amount of the surrender, and provide tax information and options for transferring the payout to you. Be aware of how long the provider needs to process your forms and how the payout will be delivered to you.
6. Handling the Received Funds
Annuity providers often deliver your money as an EFT — or electronic funds transfer — into a bank account of your choice. You may want to talk with a financial professional about the best way to manage your cash — including paying off an immediate need, managing taxes and reinvesting.
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Partial and Lump-Sum Options

When it comes to selling your annuity on the secondary market, you can choose between partial and lump-sum options. You can sell the whole thing, or you can sell the right to some of your future payments.

Selling a portion of your annuity is generally done by either forfeiting payments for a set time period, say one to three years, or selling a specific dollar amount for a lump sum.

Partial Sale

There are two options for a partial sale of your annuity: selling a period of payments or a portion of your payments over time.

Let’s say you sell three years of your annuity payments for cash now. Your annuity payments will stop for three years as the buyer collects them. After three years, your regular annuity payments will resume.

You can also sell a portion of your payments. Let’s say you receive a $1,000 monthly annuity payment. You can sell half of your monthly payments. You’ll get cash now and still receive $500 a month.

Lump-Sum Sale

A lump-sum sale lets you sell a specific dollar amount of your annuity. This allows you to get a sum of cash closer to what you actually want or need.

Remember, you will have to pay a discount to get cash for your annuity. For instance, if you sell $95,000 of your annuity to a buyer who offers a 10% discount rate, you will only receive $85,500. The buyer will take the additional $9,500 to cover overhead and profit. 

Partial vs. Lump Sum Sale infographic

For the partial and lump-sum options, the annuity retains a cash value. If, at a later date, you encounter another circumstance where you cannot wait for scheduled payments, you can contact the funding company to sell additional payments. These flexible selling options allow you to tailor the transaction to your needs, taking only what you need.

The Time Value of Money & Cashing In an Annuity

When someone purchases your future payments, it’s not a dollar-for-dollar exchange. Why is that? Because the overall value of your contract — say $100,000 — is only worth that amount over a long period of time. This can be explained by a concept called the time value of money, which states that a dollar in hand now is worth more than a dollar in hand later due to its interest-earning potential.

Factoring companies use discount rates to account for this discrepancy in value and make a small profit by giving you cash upfront. For example, if you wanted to sell annuity payments worth $10,000, and the factoring company has a 10% discount rate, you would receive $9,000 in cash.

Factoring companies calculate the discount using fluctuating variables that include:

  • Demand for their services
  • Interest rates
  • Inflation
  • Time investment

By understanding the discount rate you can use an online calculator or a formula to calculate the present value of an annuity. This will tell you how much to expect to receive when selling all or part of your annuity.

Read More: How To Find the Present Value of an Annuity

Pros and Cons of Cashing Out an Annuity

While cashing out an annuity provides financial flexibility that comes from being flush with cash, it also comes with steep costs in fees and penalties. You should also carefully consider the tax implications and other pros and cons associated with cashing out an annuity before making a decision.

Pros & Cons of Cashing Out an Annuity


  • Provides you with immediate cash for emergencies or opportunities
  • You can convert the proceeds to higher-earning investments
  • Provides potential capital gains tax advantages if reinvested within a year


  • Surrender charges, taxes and penalties
  • Lump sum withdrawal could bump you into a higher tax bracket
  • Loss of future income stream

Talking with a certified financial advisor can help you better understand both the advantages and consequences of cashing out an annuity — while considering other options and alternatives you may have.

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Key Considerations and Useful Tips When Cashing Out an Annuity

Perhaps the two most important things to keep in mind when considering taking early withdrawals from your annuity are the surrender period and the U.S. tax code. Both are designed to discourage cashing out annuities too soon.

Both also have stipulations for your withdrawals, and there are exceptions and provisions that affect the standard penalties for each.

Annuity Early Withdrawl Considerations

Surrender Fees for Cashing In an Annuity

You pay a surrender charge if you withdraw money from your annuity before the surrender period is up. Typically, it’s around 7% of the amount you withdraw.

The amount of the penalty decreases over time once the surrender period expires.

Tax Implications of Cashing In an Annuity

In addition to surrender charges, if you withdraw any money from an annuity before the age of 59 ½, you have to pay a penalty tax to the federal government of 10% of your withdrawal.

On top of that, you have to pay income tax on interest and earnings from your annuity, which could be a substantial percentage of your withdrawal if you have a non-qualified annuity — one funded with after-tax dollars.

Tax Obligations for a Non-Qualified Annuity infographic

Five Useful Tips Before Cashing Out

Cashing out an annuity can be a costly decision, but you may determine it’s worth it to get cash now. There are several things to take into account and professionals you should consult to make sure you get the most out of your decision and minimize your costs.

1. Work With a Financial Advisor or Tax Professional

Financial advisors and tax professionals possess specialized knowledge and expertise in the field of personal finance and taxation. 

They stay updated with the latest regulations, tax laws, and financial strategies that can help you make informed decisions regarding your annuity. Their expertise enables them to analyze your specific situation, evaluate the pros and cons, and provide personalized advice based on your unique financial goals and circumstances.

2. Evaluate the Impact on Retirement Income

Consider how cashing in your annuity will affect your overall retirement plan. 

Remember that annuities are designed to provide a steady stream of income over a specific period, typically during retirement.  Consider how cashing in an annuity prematurely, you could be forfeiting a valuable source of guaranteed income. 

3. Consider Estate Planning Implications

Cashing out an annuity can affect your estate planning since the cash proceeds will become part of your estate. Depending on the size of your estate and the prevailing estate tax laws, this could lead to potential estate tax liabilities.

If you have designated beneficiaries for your annuity, cashing it out may affect their inheritance. Annuities often allow you to name specific individuals or entities as beneficiaries who would receive the remaining value of the annuity upon your death. By cashing out the annuity, you may terminate this feature, potentially depriving your beneficiaries of the intended inheritance.

4. Manage Potential Tax Implications

Cashing in an annuity may have tax implications beyond potential taxable income and early withdrawal tax penalties. Talking with a tax advisor — rather than a financial advisor — may give you additional insight.

A tax advisor keeps current on IRS regulations and specializes in complying with tax laws for their clients. They can also make use of tax laws to your benefit. Their expertise can help you navigate the tax complexities associated with annuities, ensuring you make choices that minimize tax liabilities and optimize your overall financial situation.

They may be able to help you defer taxes on your lump sum payment by deferring taxes through qualified plans and using other tax-efficient methods and investment vehicles to save you money.

5. Review and Update Your Overall Financial Plan

When cashing out an annuity, it’s crucial to review and update your overall financial plan. Cashing out an annuity can have far-reaching implications on various aspects of your financial life. 

It may affect your retirement income, tax liabilities, estate planning, and overall financial goals. By reviewing your financial plan, you can assess the potential long-term consequences of cashing in the annuity and make necessary adjustments to ensure your financial well-being. 

This includes evaluating alternative income sources, considering tax implications, revisiting your investment strategy, and adjusting your retirement savings targets. 

Updating your financial plan allows you to make informed decisions that align with your revised circumstances, ensuring that your retirement goals and future financial needs are properly accounted for. 

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Frequently Asked Questions About Cashing Out Annuities

How long does it take to cash out an annuity?

How long it takes to cash out an annuity depends on what type of annuity it is. In most cases, cashing out an annuity may require 30 days. If the annuity funds a structured settlement — and requires court approval to sell its payments — it may take up to 90 days or more to process.

What is the best way to cash out an annuity?

The most clear-cut way to withdraw money from an annuity without penalty is to wait until the surrender period expires. If your contract includes a free withdrawal provision, take only what’s allowed each year, usually 10%. To avoid owing penalties to the IRS, wait to withdraw until you are 59½ and set up a systematic withdrawal schedule.

Can you cash out multiple annuities at the same time?

You can cash out variable, fixed and indexed annuities at any time. But you will have to pay any surrender charges, taxes and penalties due on each annuity you cash out.

Can you change your mind after initiating the cash-out process?

When you cash out an annuity, the insurance company only pays you the cash surrender value of the annuity. You forfeit any surrender charge. Cashing out your annuity also makes you subject to taxes and penalties. 

But a 1035 exchange may allow you to transfer the money from your current annuity to another one. This is an option if you find an annuity you prefer over the one you have. But you may still have to pay the surrender charge.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: May 8, 2024