How to Get Money Out of an Annuity: 7 Options Compared

There are seven main ways to get money out of an annuity. You can use the free withdrawal provision, claim a hardship waiver, wait out the surrender period, set up SEPP payments, annuitize the contract, surrender it entirely, or sell your payments for a lump sum. The right choice depends on your age, your contract terms, and how much cash you actually need.

If you are reading this, you have probably already discovered that the insurance company does not make it easy to reach your own money. Most of our customers start exactly where you are right now. Below, we walk through each option roughly from cheapest to most expensive, with the real costs and timelines spelled out.

1. Use the Free Withdrawal Provision

Most annuity contracts let you withdraw up to 10% of your account value each year with no surrender charge. The NAIC Annuity Buyer's Guide confirms this is a standard feature across most products.

The allowance usually resets on your contract anniversary and does not carry over if you skip a year. Keep in mind that the free withdrawal only waives the insurer's charge. If you are under 59 1/2, the IRS can still take its 10% penalty on the taxable portion. We cover the fine print in our guide to annuity surrender charges.

2. Check Your Contract for Waiver Riders

Many contracts waive surrender charges entirely for nursing home confinement, terminal illness, or total and permanent disability. Required Minimum Distributions from qualified annuities are also exempt in many contracts.

We see people surrender contracts and eat the charges without ever checking for these riders. Read your contract first, or call the insurer and ask directly. If you qualify, a waiver can turn the most expensive exit into one of the cheapest.

3. Wait Out the Surrender Period

Surrender periods typically run 6 to 10 years from the contract issue date, with the charge declining each year until it hits zero. If your schedule is already down to 1% or 2%, waiting one more contract year may save you real money on a large balance.

This is the cheapest option on paper and the least useful one in practice. Most people looking up how to get money out of an annuity need the cash now, not in three years.

4. Set Up SEPP Payments if You Are Under 59 1/2

Substantially equal periodic payments (SEPP) let you take regular distributions before age 59 1/2 without the 10% IRS penalty. The IRS rules require the payments to continue for at least five years or until you reach 59 1/2, whichever is longer.

SEPP is a commitment, not a quick fix. Modifying the payments early restores the penalty retroactively, with interest. It fits people who want a steady income stream from the annuity, not people who need a lump sum for a roof, a medical bill, or a down payment.

5. Annuitize the Contract or Take a Loan

Annuitizing converts your account value into a guaranteed income stream from the insurer. It gets money flowing, but it is usually irreversible and it trades your lump sum away permanently.

Loans are the narrower path. Some annuities inside 403(b) retirement plans allow them, subject to IRS limits. Most non-qualified annuities do not. If your contract allows a loan, compare the loan rate against what the other options cost before you borrow.

6. Surrender the Contract (the Expensive Exit)

A full surrender cancels the contract and pays you the cash surrender value. That is the account value minus the surrender charge, which typically starts at 7% to 10% in the first year and declines from there.

The taxes stack on top. Non-qualified annuity withdrawals are taxed earnings-first under the LIFO rules in IRS Publication 575, and the 10% penalty applies to the taxable portion if you are under 59 1/2.

Say you are 52 with a $100,000 annuity that includes $20,000 of earnings, and you are in a contract year with a 5% surrender charge. You would hand the insurer roughly $5,000, owe ordinary income tax on the $20,000 of earnings, and owe a $2,000 IRS penalty on top. The all-in cost of the exit can pass 20% before the check reaches you. Our guide on withdrawing from an annuity breaks down the penalty math in more detail.

7. Sell Your Annuity Payments for a Lump Sum

If your annuity is already paying out, you can sell some or all of your future payments to a buyer like CSF. The contract stays in force, the insurer keeps making payments, and the surrender charge never enters the picture because nothing is being canceled.

Most sales fund within 30 to 60 days. Structured settlement annuities require court approval in every state, and some other annuity types do as well depending on where you live. CSF handles the paperwork and filings either way. We have purchased thousands of payment streams, and we will not be beat on price.

Get quotes from two or three buyers before you sign anything. We say that because we know what happens when people compare. You can read more about the process in our guides on cashing out an annuity and selling annuity payments, or visit our annuity purchasing page.

Which Option Should You Use?

Use the free withdrawal or a waiver rider for smaller needs, SEPP for steady income under age 59 1/2, and a sale when you need a larger lump sum.

Choose a free withdrawal or waiver if the amount you need fits inside 10% of your account value, or if a nursing home, terminal illness, or disability rider applies to your situation.

Choose SEPP if you are under 59 1/2 and want recurring income rather than one check, and you can commit to the schedule for at least five years.

Choose to surrender if you are past the surrender period, past 59 1/2, and need the entire account value in cash.

Choose to sell your payments if your annuity is already paying out and you need more cash than a free withdrawal allows, especially if surrender charges or the IRS penalty would otherwise apply. Have questions about what your payments are worth? Call us at (800) 317-3769 or request a quote online. There is no cost, no obligation, and no pressure.

Frequently Asked Questions

How do I get money out of an annuity without paying a penalty?

The penalty-free routes are the free withdrawal provision (usually up to 10% of account value per year), waiver riders for nursing home confinement or terminal illness, waiting until you are past age 59 1/2 and outside the surrender period, SEPP payments, and selling your payment rights. Selling avoids the insurer's surrender charge because the contract stays in force.

How much does it cost to cash out an annuity early?

Cashing out early can cost 20% or more of your money. Surrender charges typically start at 7% to 10% in the first contract year, the IRS adds a 10% penalty on the taxable portion if you are under 59 1/2, and the earnings come out first as ordinary income under LIFO tax rules.

Can I take money out of my annuity before age 59 1/2?

Yes, but the taxable portion of the withdrawal is subject to a 10% IRS penalty on top of ordinary income tax. Exceptions include disability, death of the owner, substantially equal periodic payments (SEPP), immediate annuities, and structured settlement annuities under IRC 72(q)(2)(G).

What is the fastest way to get money from an annuity?

A free withdrawal is usually the fastest, often paying out within days. A full surrender typically takes 7 to 30 days once the insurer processes the request. Selling your payment rights takes 30 to 60 days when court approval is involved.

Is selling annuity payments better than surrendering?

Selling usually wins when you are inside the surrender period, under age 59 1/2, or holding a structured settlement annuity, because the contract stays in force and the insurer's surrender charge never applies. Surrendering makes more sense when the surrender period has expired and you need the entire account value.

Can you borrow money from an annuity?

Some annuities held inside 403(b) retirement plans allow loans, subject to IRS limits. Most non-qualified annuities purchased directly from an insurer do not offer loans. Check your contract or ask the issuing insurance company before counting on this option.