So the question is, how to get out of a fixed annuity? The easy answer is to die, but that's not a very good strategy and undoubtedly not replicable. I love it when people use the word "annuity" as all-encompassing. There are so many different types. So let's just look at the fixed annuity types.
There are single premium immediate annuities, deferred income annuities, qualified longevity annuity contracts, multi-year guarantee annuity, and fixed index annuities. All of those are considered "fixed annuities.” So getting out of those depends on what type you're in. Let's get to the point of which ones you can never get out of because they're irrevocable. Single premium immediate annuities, deferred income annuities, and qualified longevity annuity contracts are, in essence, "pension annuities.” It's like ripping the knob off a water faucet. The water is flowing; the income is flowing; you can't pivot and call me up and say, "We bought this deferred income annuity and getting the income stream. I don't want to do it anymore. Send me the money." Therefore you cannot get out of SPIAs, DIAs, and QLACs.
So what we're going to focus on the multi-year guarantee annuities, the fixed indexed annuities, which are the primary fixed annuity types that you can get your money out of. So how can I get my money out of an annuity without penalty when we're talking about multi-year guarantee annuities and fixed index annuities? I mean, you can get your money out, you can just cash it out, but how do you do it without penalty? Most of those contracts allow you to take a specific percentage out annually without any penalty. Fixed indexed annuities typically allow 10% annually you can take out. Now, multi-year guarantee annuities are a little bit different. Most contracts do allow you to take some money out, whether interest, penalty free or 5% or 10% of the annual amount of the value you can take out penalty-free.
The bottom line is you have to understand the policy. You have to tell me exactly what you want to happen and the type of liquidity provision that you want in place. Like I said, with index annuities, typically, it's 10% annually. Not all, but most of them are 10% annually. With multi-year guarantee annuities, you have to check them. On our MYGA feed we show, depending on your state, whether they allow you to take out 10%, take out 5%, or whether they allow you to take out interest or a combination. There are a handful that doesn’t allow you to take any money out during that surrender charge period with MYGA.
Just so you understand, if you cash in an indexed annuity with the income rider, you’re only going to get the accumulation value and not the income rider value. As long as you understand you're going to leave that on the table, cash it out. We'll send you the paperwork. If you purchased it through The Annuity Man and want to cash out, that's fine. At that point we've gone through all the details, and the surrender charges, and if you're going to leave any benefits on the table with a rider and you say, "Yes, I still want to move forward." That's fine. It's your money. If you make that decision my administrative team will send you the paperwork that you'll have to sign and date and get back to us that says, "Yes, I want to fully surrender this contract." We'll take that paperwork and work with our contacts at the specific annuity carrier. After that, we're going to do the best we can for you, but it's typically about a two week time period.
But if you bought an annuity that you aren't happy with where you were sold the dreams and now you realize the contractual realities you can do what's called a 1035 exchange at a non-IRA setting. 1035 is the IRS code that says, "You can transfer from one annuity to another using the 1035 provision and it's a non-taxable event." When you move from one annuity to another, whether it's IRA to IRA or 1035 exchange with non-IRA annuities, in the application process, we have to do a side-by-side comparison of the annuity that you're coming from to the annuity that you're going to and it has to be in your mathematical favor. So just because you can transfer it doesn't mean we will go forward with that. We'll have to run the comparison numbers and make sure you're getting the highest contractual guarantee.
Never forget to live in the reality, not the dream with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.