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What Happens At The End Of My Annuity?

Carl Ostenson

Question: What happens at the end of my annuity?

Answer: Usually people that ask me this question are typically talking about either a fixed rate annuity or an indexed annuity. So I’ll answer the question with those in mind (ie. a 5 year fixed annuity or a 10 year indexed annuity).

So let’s look at each type separately:

Note: You will see that the big difference between the two types is Option #1. With indexed annuities you can usually stay with them as long as you want, and they will not restart a new surrender period after your contract is up. With regular fixed annuities, usually if you want to stay with the same company, you will have to start a new contract term with new surrender charges. 

Indexed Annuity: End of term options

  • Keep It Where It’s At:
    With most indexed annuities you can just keep the money in the contract if you are happy with it. The nice thing is that most of the time you do not start a brand new contract term meaning there is NO new surrender period that you have to deal with. That means you can keep it there for another year or as long as you like, and then if you decide later to move it somewhere else you can do so without any surrender penalties.
  • Take Your Money And Run:
    You can have the annuity company issue you a check for your full account balance. There will be taxes due on the accumulated interest if you choose this option. You can then reinvest it or spend it however you want.
  • Transfer To A Different Annuity With A 1035 Exchange:
    This is a transfer from one annuity company to a different annuity company. The reason people do this after their term is up is to get a higher rate or a better benefit of some kind that their old annuity did not have. The nice thing about 1035 exchanges is that there are NO taxes due as long as you go from one annuity to another annuity.
  • Annuitize:
    Most contracts allow you the option to turn your deferred annuity into a lifetime income stream. This is called annuitizing. You essentially turn your contract over to the insurance company and they agree to make payments to you for life, or for a certain period of time. The payments will depend on your age and the payment option that you choose. The downside to annuitizing is that you give up control of your money in exchange for monthly payments. 

Fixed Rate Annuity: End of term options 

  • Let It Roll Into A New Contract:
    Usually about 30 days from your final contract anniversary the insurance company will send you a letter. In the letter they will make you an offer. Let’s say you own a 5 year Fixed Annuity paying 4% and it’s coming due. In the letter the company may offer you 3% if you agree to another 5 year contract. (The new offer could be higher, lower or the same as you old annuity rate)  You then, usually, have about 30 days after your contract anniversary to decide if you want to accept the new offer or move the money somewhere else.
  • Take Your Money And Run:
    You can have the annuity company issue you a check for your full account balance. There will be taxes due on the accumulated interest if you choose this option. You can then reinvest it or spend it however you want.
  • Transfer To A Different Annuity With A 1035 Exchange:
    This is a transfer from one annuity company to a different annuity company. The reason people do this after their term is up is usually to get a higher rate or a better benefit of some kind that their old annuity does not have. The nice thing about 1035 exchanges is that there are NO taxes due as long as you go from an annuity to another annuity.
  • Annuitize: Most contracts allow you the option to turn your deferred annuity into a lifetime income stream. This is called annuitizing. You essentially turn your contract over to the insurance company and they agree to make payments to you for life, or for a certain period of time. The payments will depend on your age and the payment option that you choose. The downside to annuitizing is that you give up control of your money in exchange for monthly payments. 

There were a few annuities sold years ago that forced you to annuitize in order to get your money. I don’t see those types anymore. In most cases you have plenty of options after your term is up.

Click here (Carl Ostenson) to see more of this author’s articles.

About the Author:

Carl Ostenson specializes in helping his clients use their IRA or 401k to set up their Retirement Income Plan for when they retire. He works with clients in the Chicagoland area and surrounding suburbs.

If you live in Chicagoland and want to talk about annuities with a local guy, give Carl a call at 847-376-8400… there’s never any pressure. To get more about Carl, visit: www.ProtectMyIRA.com.

Be sure to check out his Free IRA Guide titled “How to Get Secure and Predictable Income From Your IRA/401k When You Retire.”

 

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1 Comment

  • Byron brown says:

    I have monies received from insurance payout which is tax free.looking at 5 year annuity fixed .what would happen at end of contract.would I get full investment back ??

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