Selling annuity tax consequences

If you sell your total annuity contract, the amount in the annuity that exceeds what you paid for the annuity is considered taxable as ordinary income. The money you may have spent on riders is not considered part of your initial investment, and therefore is not excluded from income tax.

Is there a penalty for cashing out an annuity?

The insurer issuing the annuity charges surrenders fees if funds are withdrawn during the annuity's accumulation phase. The IRS charges a 10% early withdrawal penalty if the annuity-holder is under the age of 59½.

Is the cash value of an annuity taxable?

Taxation of qualified annuities\n\n Payouts: You will pay normal income taxes on the entire distribution amount. Annuities purchased with a Roth IRA or Roth 401(k), however, may be tax free if specific requirements are met.

How much of an annuity payment is taxable?

Qualified annuities are funded with pre-tax dollars and are not taxed until you begin making withdrawals. At that point, 100% of the withdrawals are subject to ordinary income tax rates. Non-qualified annuities, on the other hand, are also funded with already-taxed money, and only the earnings are taxed when withdrawn.

Can I sell my annuity for a lump sum?

Yes, you can sell your annuity payments for cash. In the event your financial needs change and an annuity is no longer meeting your needs, you can sell your current or future payments for a lump sum of cash.