- 1). Review the contract terms on your annuity. Compare the contract inception date with your surrender period to see where you are in the contract. Annuities may be anywhere from three to 15 years. During this time, called the surrender period, you are assessed a fee for any money you pull out of the annuity that does not qualify for a waiver.
- 2). Determine if there are any fees to remove the money. Waivers include a percentage you are allowed to pull out annually (often 10 percent), long-term care or disability. Surrender charges can be as high as 15 percent, usually highest in the early years of the contract and going down with each year. The fee schedule should be part of the contract.
- 3). Call the company and request a "surrender form." Be sure to indicate in the boxes provided whether this is a complete surrender, partial surrender and whether you qualify for any waivers according to the contract terms. If the annuity is toxic, you are most likely doing a complete surrender irrespective of any waivers. Submit the form.
If you have held the annuity for any number of years, you may want to have taxes withheld. If not, you will need to report the distribution on your tax return (either Form 1040 or 1040A). - 4). Wait for your check and deposit it when you receive it.
- 1). Determine if an annuity is still the best option for you. Even though one annuity is toxic, you may still find annuities to be a smart investment option because of the tax-deferred growth. If you have held the annuity for many years, you may want to do a 1035 Exchange, which moves money from one annuity to another without generating a taxable event. Ask your financial advisor about your options if you have any concerns.
- 2). Determine a better annuity investment. You can speak with your financial advisor or insurance agent about other annuity options. There are many great online resources, such as AnnuityFYI.com, that help you compare contract terms, fees and performance among many different annuities. Use these resources to find the right annuity for you.
- 3). Fill out a new annuity application with the company you decide has the best product for you. Be sure to include 1035 Exchange paperwork requesting the transfer of assets from the other company. Keep in mind that a 1035 Exchange prevents a taxable event but does not waive surrender charges assessed by the toxic annuity. Remember to review the terms of your contract as you did in Section 1, Step 1 to fully understand how much will transfer.
- 4). Wait for the transfer to complete. You will receive notification from the new annuity company when the money funds the annuity.
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