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How to Liquidate an Annuity

Stan Haithcock
June 12, 2023
How to Liquidate an Annuity

Hey, Stan, The Annuity Man, America's annuity agent, licensed in all 50 states and brutally factual about annuities. Now, you're asking the question of how to liquidate an annuity, which I'm assuming you own one, and you're tired of it, and you don't want to own it anymore, blah, blah, blah, blah, blah. Whatever the case, we can help you with that, but depending on what type of annuity you have. Some annuities aren't sellable, so we will have to cover every single one and tell you how to liquidate it or if you can liquidate it, etc. And if you want us to help you with the annuity you wish to liquidate, we certainly will do that. You can book a call with us, and we will walk you through the process. Listen, we didn't sell it to you, probably, right? But we'll help you. You don't have to go back to the source where you purchased it. We will help you pro bono, with no fees, and no charge, to make sure everything gets done correctly and the way you want it done.

Look at Your Statement

Okay, so how do you liquidate an annuity? The easy answer to that is to look at your statement. If you have a statement, if you get a monthly or annual statement, I don't know what type you have and call that carrier. Typically, they have an 800 number listed on the statement. You can call them, give them your account number, and they will tell you if it's sellable and if there are surrender charges or whatever's involved. Now, if you have an Immediate Annuity or a Deferred Income Annuity, or a Qualified Longevity Annuity Contract, those are not sellable products. There is a vague secondary market of people trying to buy and sell those, but it's not a place to go, in my opinion. When you have an Immediate Annuity, Deferred Income Annuity, or a Qualified Longevity Annuity Contract, those are irrevocable lifetime income streams that you typically cannot sell.

Now, some of these companies might have put in there, and the agent that sold it to you might have put in some liquidity provision, but I would encourage you to call the company, call the carrier that you're getting the statements from, and find out from them what your wiggle room is if you have any way to get out of that annuity. Now, if it's a Deferred Annuity, like a Variable Annuity, a Fixed Index Annuity, or a Multi-Year Guarantee Annuity, there could be surrender charges to liquidate.

Surrender Charge

In other words, for example, I had a client call the other day, and someone had sold him a Fixed Index Annuity that had a 10-year surrender charge on it, which means the surrender charges declined over time, like 10%, 9%, 8% over time, and it was year four. Something changed in his life, and he just needed the money, and he was going to get a really high percentage. It was a 6% surrender charge. So even when you're liquidating, and you can liquidate it, you need to get the full cost of what that will cost you to do. And the way to do that is to call the carrier. We can help you with that if you book a call, but it's the surrender charge so that you can get all your money back.


Let's talk about taxes. There could be taxes when you liquidate your annuity, and you should refrain from speaking to your agent or advisor about taxes. And even though I've been in this game for a long, long time, three decades, I'm not a tax advisor or a CPA or a tax lawyer. If you have any tax questions, go to them, and have them sign off on it. But if you're liquidating an annuity, there could be tax consequences, especially if you held it for a long time outside of an IRA. There could be a low-cost basis that's been deferring all this time, and you're going to have to pay taxes on that. Or if you're selling it inside of an IRA, there are no tax consequences, and it'll just go to a cash account. So, it just depends.

Client Example

A person called me the other day, and I get a lot of calls. Please contact me if you have something on your mind about annuities because I am America's annuity agent. I'm here to help, and I do not charge for advice, and you should tap into that because there's three decades of experience behind all of that. So, the guy calls me. He had purchased an annuity from an agent or advisor and didn't like it. It was a Variable Annuity, which is a good product, so I have nothing against them, but he didn't like what he bought, and he wasn't fully explained on what the product was. And the fees on it were really, really high, and he was just angry. He was, "I'm just tired of it. I want to get rid of it." He sent me an email with a PDF of a recent statement. We looked at it, and I said, "You might want to hold off on that." Because here's what he was looking at.

Number one, it had gained a little bit of money, not as much as he wanted, which is the reason he was mad. And I said, "Number one, it's gained some money, and so if you sell it, you're going to have to pay taxes on it," which he wasn't thrilled about. I said, "Number two, there was an Income Rider attached to that Variable Annuity," which means that if he sold it, he's not going to get the value of that Income Rider, which was the higher of the two values, accumulation value, and Income Rider value. The Income Rider value was much higher, so if he cashed it in, he's just going to get the accumulation value. But at the end of the day, he was just mad about the fees. They were pretty high on it, two to 3% per year, but it was a really big number. And he was saying, "I could be driving a Ferrari for what I'm paying monthly on that." I said, "You're missing the point, but I understand." So what we did, instead of him liquidating the Variable Annuity, incurring taxes, and all that stuff, he actually decided to transfer it, even though he's going to leave the Income Benefit Rider valuation on the table, transfer it to a very short term MYGA, strip out all the annual fees until he calmed down a little bit and decided what to do with his money.

I know it's an emotional fee. You're probably sitting out there going, "I bought this darn annuity at this bad chicken dinner seminar, and I don't know what to do with it." We can make lemonade out of the lemon if you think it's a lemon and tell you your good and bad options before you pull the trigger. Please contact me so that we can have a good discussion about it. It's not going to be some salesy stuff. I'm not going to try to sell you something. I'm going to get you through the process of does it make sense, or should you stay and make lemonade with the lemon you think it is, or should you transfer it to another annuity, etc. At the end of the day, you might want to liquidate it, that's fine, and we can help you with the process, but it's not as cut and dry and black and white as you might think, and every situation is different. Let's help you with that decision that's pending in your mind.

Never forget to live in 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.

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