Be Cautious When Cashing Out An Annuity Early

In the past, cashing out stocks, bonds, or mutual funds was simpler than cashing out an annuity. If the annuity was already paying out sums to you, then you were probably stuck with it.Today it is possible for people with annuities to sell them off and get a lump sum for them.It still may not be a good idea to cash out of an annuity early. Pay close attention to the payment dates. An annuity that will pay $150,000 in 2020 will not pay much if you try to cash it out today. If you cash out early, you may only get one quarter of what you might get on the payout date.You will also want to take the bottom line into consideration. By cashing out early you could lose up to one half of your annuity. Short of medical emergencies or other serious crisis, cashing out an annuity early may not be worth the short-term gain.Always read the fine print. There may be charges, fees, and taxes that you may not have taken into account. Before you make any decision, there are some things to consider.The IRS offers a tax treatment for a portion of the annuity. If you are under the age of 59 and choose to cash out your annuity, a 10% penalty on the taxable amount of the annuity will be forfeited to the IRS.There are other options available to cashing out an annuity. The 1035 exchange allows you to exchange one kind of annuity for another. If you want to cash out an annuity early for immediate cash flow, this option will not help.A waiver is another option to prevent tax penalties. Some annuities allow you to withdraw without penalties for a serious illness or nursing home confinement. Some insurers will allow you to take out as much as 10-15 percent.