Time is an important factor when deciding when to use money from an annuity. Depending on when you purchased it, it may make sense to withdraw funds from your pension, provided that the contract allows it. If you have recently bought your pension, it may be wise to sell future payments. Can annuities be cashed out?
Unlike people who have bought pensions under a financial or retirement plan, structured billing recipients are not allowed to withdraw money in advance. But you still have options, including selling future payments. Or, if you haven’t received the settlement money yet, you may be eligible for some type of cash advance to cover expenses while you wait.
Withdrawing money from an annuity
You have two ways to gain immediate access to cash from an annuity or structured settlement: withdraw funds from an annuity or sell the right to future payments. If you decide to sell payments, you can sell several payments or a specific amount in dollars. But no matter what solution you choose, remember that taxes, fees and penalties may apply.
If you have exhausted all your options and have made an informed decision to pay part of your pension to meet your immediate financial need, withdrawing money from this income-generating resource is not the only option.
You can also sell your payments to the annuity buyer if the payment fees and tax penalties are too high.
Do you need cash now?
Annuities provide a reliable cash flow over a period of time. But your financial needs can change in an instant and can cause you to re-evaluate your pension. This is especially true for medical or financial emergencies and new business opportunities.
Earlier withdrawals usually have high tax implications and cancellation fees. Penalties diminish over time, so if you wait a few years, you may incur lower fees.
But what if you can’t afford to wait because you need cash now?
You can get more money by selling payments on the secondary market instead of withdrawals from your pension account. The sale of payments can provide flexibility and immediate access to a large amount of cash, which you can invest in other financial instruments or use to pay off long-term debt.
Reasons for selling an annuity include:
- Job loss
- Medical Emergency
- Lifestyle change
- Lifetime inheritance
Note: Not all pensions are eligible
Before selling an annuity on the secondary market, follow these four steps:
- Contact the company that sold you the pension. As the industry continues to add more options, you may find that your pension has a payout feature you never knew about.
- Contact a financial advisor or insurance agent. He should be able to explain options and help get the best deal on the secondary market.
- Think about how much cash you need. You may only have to sell part of your pension. Then you can let the balance increase deferred tax, and even delay payments.
- Find out how much you owe for your income tax if you sell your pension. Don’t wait until you get the check. By this time it is too late and you may end up sending a large portion of what you just received to Uncle Sam.