Penalty possible for switching annuities — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Penalty possible for switching annuities

Get PDF file

by on
in Small Business Tax

Q: The annuity I bought a couple of years ago charges high maintenance fees. Will I have to pay any penalties if I withdraw my funds and switch to a different investment with lower fees? C.R., Mt. Pocono, Pa.

A: It depends. Typically, the issuer imposes a surrender fee for withdrawing from an annuity, especially in the early years of ownership. To compound the problem, the IRS assesses a 10 percent penalty tax if you withdraw from an annuity prior to age 59 1/2. But you can at least avoid the penalty tax by swapping one annuity for another annuity tax-free under IRC Section 1035. Conversely, switching to a mutual fund investment won't qualify as a tax-free exchange. Contact the annuity issuer to see what options are available to you.

Related Articles...

Leave a Comment

Previous post:

Next post: