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Annuity withdrawals: Rules, taxes & charges

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Annuities can complement your retirement income plan, providing guaranteed payouts either for a specific number of years or for life. Until the time you begin regular payments, your money has the potential to grow and helps maximize the amount of your payouts. If you face a budget crunch after a job loss or an unexpected expense, however, you have the option to make annuity withdrawals for an additional source of cash.

Before pulling out money, you'll want to consider possible surrender charges, taxes and tax penalties that can prevent you from reaping the full benefits of your contract.

Here's how the timing, amount and frequency of your annuity withdrawals can affect your outcome.

What we'll cover:

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What is an annuity withdrawal?

An annuity withdrawal is when you remove money from your annuity’s accumulated value. However, withdrawing from an annuity is a more complex process than walking into your bank and taking out funds. Before you make a withdrawal from an annuity, it's important to review the contract and confirm if there are fees or penalties and make sure you understand any potential tax implications.

Most deferred annuities allow you to make withdrawals before the annuitization phase, when you request to begin receiving guaranteed annuity payments. However, some types of annuities have different rules. For example, you can’t access money from a deferred income annuity until the specified annuity payments begin. A financial advisor can help you understand the rules specific to your annuity contract.

When should you start taking money from my annuity?

Annuities are insurance products designed for your long-term income needs. They are designed to begin taking withdrawals after the surrender period is over and you have reached age 59½.

However, early withdrawals are possible. If you experience a sudden loss of income or a large medical bill, for example, the money from your annuity can be withdrawn to prevent you from taking on a significant amount of debt.

But using an annuity (or any retirement product) as a short-term savings vehicle should be a last resort. Taking out money early can result in lower payouts during your retirement years because of the effect on the balance of your annuity. Depending on your age and how long you've owned the annuity, you may also have surrender charges and federal tax penalties.

Rules for withdrawing from an annuity

Understanding annuity withdrawals can help you choose the best path forward. Here's what you need to know if you are:

  • Withdrawing from your annuity after age 59½ and outside of the surrender charge period of your contract.
  • Withdrawing from your annuity before age 59½ (making an early withdrawal).

1. Rules if you are not making an early withdrawal

If you are ready to take retirement income and decide to pull money from your annuity contract, the best time to do so is after you've reached age 59½ and the surrender charge period of the contract has passed. Here’s what you need to know:

Your withdrawal amounts will be taxed as ordinary income

Even when you withdraw money from a deferred annuity after age 59½ and after the surrender charge period, you still have to pay ordinary income tax on the portion of your withdrawal that comes from earnings. The tax implications are different if you purchased the annuity as part of a qualified retirement plan, such as a traditional 401(k), 403(b) or IRA. In that situation, you generally have to pay tax on the entire amount of the withdrawal—not just the earnings—because you funded the annuity with pre-tax dollars.

Therefore, it's important that you manage your withdrawals in a way that minimizes your tax liability. If the amount you access is going to push you into a higher tax bracket, for instance, you might consider taking out two smaller withdrawals in consecutive tax years so you can pay a lower rate.

Here are the tax brackets for the 2024 tax year for single and joint filing statuses:

2024 federal income tax brackets for single tax filers

Tax rate
Taxable income bracket
Tax owed
$0 to $11,600
10% of taxable income
$11,600 to $47,150
$1,160 plus 12% of the amount over $11,600
$47,150 to $100,525
$5,426 plus 22% of the amount over $47,150
$100,525 to $191,950
$17,169 plus 24% of the amount over $100,525
$191,950 to $243,725
$39,111 plus 32% of the amount over $191,950
$243,725 to $609,350
$55,679 plus 35% of the amount over $243,725
$609,350 or more
$183,647 plus 37% of the amount over $609,350

2024 federal income tax brackets for joint filers

Tax rate
Taxable income bracket
Tax owed
$0 to $23,200
10% of taxable income
$23,200 to $94,300
$2,320 plus 12% of the amount over $23,200
$94,300 to $201,050
$10,852 plus 22% of the amount over $94,300
$201,050 to $383,900
$34,337 plus 24% of the amount over $201,050
$383,900 to $487,450
$78,221 plus 32% of the amount over $383,900
$487,450 to $731,200
$111,357 plus 35% of the amount over $487,450
$731,200 or more
$196,670 plus 37% of the amount over $731,200

2. Rules if you are making an early annuity withdrawal

If you find yourself in a situation where you need cash, your annuity contract provides you with an option. But pulling money from your annuity before you reach age 59½ does come with a cost. If you take out money early, be aware that income taxes may not be the only consequence you'll have to face.

Here are a few other factors to consider:

You may face surrender charges

Regardless of your age, taking money from your annuity during the surrender charge period can be costly. The surrender charge is typically a percentage of the amount you withdraw. It usually starts as a higher percentage of the withdrawal amount in the first year and then falls by a specific percentage each year. Many surrender charge periods are "rolling," which means a separate surrender charge period applies to each contribution you make to the annuity.

For example, you might have to pay a 7% surrender charge if you withdraw money from an annuity in year one, but the charge may decline by 1% each contract year until after the seventh year, when there would be no surrender charge.

There are several situations where you can withdraw money from an annuity without incurring a surrender charge, but it depends on what your contract allows and if you meet specific criteria. For example, many annuities allow you to withdraw a certain amount of money each year—often 10% of the accumulated value—before assessing a surrender charge. Some contracts also have exceptions for job loss, disability or confinement to a long-term care facility.

You'll likely have a 10% federal tax penalty for early withdrawals

If you're younger than 59½ and withdraw money from your annuity, the IRS will apply a 10% federal tax penalty on the taxable portion of the withdrawal, unless you meet an exception. And because the IRS assumes that you tap earnings before your principal, that means all or most of your withdrawal may be subject to this penalty. Keep in mind that the 10% penalty is in addition to any ordinary income taxes that apply, which means more of your cash could end up going to the federal government.

You may not have to pay this extra tax, however, if you qualify for an exception to the early withdrawal penalty. For example:

  • You or your heirs receive funds after your total and permanent disability or death.
  • You receive substantially equal periodic payments (SEPPs) at least once a year based on your life expectancy.
  • You have qualified higher education expenses.
  • You're making a first-time home purchase (up to $10,000 lifetime limit).
  • You have certain unreimbursed medical expenses.

Can you cash out your annuity?

Closing or cashing out an annuity altogether is an option if you need all the funds. However, this may also result in surrender charges, tax implications and the 10% federal tax penalty. So make sure the use of your cash provides more value than the fee you'll likely pay for surrendering your annuity. Proper planning is essential. Before you get started, consider speaking with a financial advisor, who can help guide you through your options.

Other considerations about annuity withdrawals

There may be additional considerations depending on whether or not your annuity has specific features. For example, if you have optional riders such as a death benefit rider, a guaranteed lifetime withdrawal benefit (GLWB) rider, or a guaranteed minimum accumulation benefit (GMAB) rider, annuity withdrawals will reduce the benefits of those riders. Your financial advisor can help you understand the effects of withdrawals so you can make an informed decision.

The bottom line on annuity withdrawals

Withdrawing money from an annuity should be a thoughtful process, and with the help of a financial advisor, you can make the best decision for your future. They can help you understand the pros and cons of different options and determine which solution is best for your circumstances.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

Investing involves risk, including the possible loss of principal. The prospectus and summary prospectuses of the variable annuity and underlying investment options contain information on investment objectives, risks, charges and expenses, which investors should read carefully and consider before investing. Available at

Guarantees based on the financial strength and claims paying ability of the product’s issuer.

Concepts presented are intended for educational purposes. This information should not be considered investment advice or a recommendation of any particular security, strategy, or product.

Holding an annuity inside a tax-qualified plan does not provide any additional tax benefits.

Withdrawals and surrenders will decrease the value of your annuity and, subsequently, the income you receive. Any withdrawals in excess of 10% may be subject to a surrender charge.

The taxable portion of each annuity distribution is subject to income taxation. If a taxpayer is younger than 59½ at the time of distribution, a 10% federal tax penalty will apply to the taxable portion of the distribution unless a penalty-tax exception applies.

Riders are optional and available for an additional cost.