By Brent Matthew
Have you been funding an annuity for future retirement income… but suddenly you need cash now? You’re not alone, and you’re right to pause before taking money out. Many people assume the only way to access annuity funds early is to surrender the contract and absorb steep penalties, but that isn’t always the case.
In this guide, we walk through five ways to withdraw money from an annuity early, including options that may reduce surrender charges, help you spread out taxes, or create income sooner—along with the tradeoffs to consider before you act.
How to Withdraw Money From an Annuity Early
Need to access annuity funds early? Some people believe the only option is to surrender the annuity and pay large penalties. Fortunately, there are more annuity withdrawal options.
1. Take a Partial Withdrawal (Within Free Withdrawal Limits)
If you’re wondering how to withdraw money from an annuity early, this is one of the easiest strategies. Most deferred annuities have what’s called a “free withdrawal provision.” Here’s how that provision usually works:
- You withdraw up to 10% of the value without owing surrender charges.
- You owe income taxes on the earnings portion of the withdrawal.
- Some annuities reset annually, but others are cumulative.
When I have a client wanting to withdraw from deferred annuity accounts, this is usually the most straightforward way for them to do so.
2. Take Advantage of Penalty-Free Withdrawal Exceptions
Over the course of your retirement planning, you’ve probably done what you can to insulate yourself from risk. However, you can’t predict the future, and when unforeseen circumstances arise, you might find yourself in need of a little extra money.
If you need more than your allotted free withdrawal limit, you should know that many annuities allow penalty-free withdrawals for specific hardships:
- Being diagnosed with a terminal illness
- Being confined to a nursing home for 90+ days
- Being diagnosed with a disability
If you’re unsure of how to withdraw money from an annuity early when you suffer a hardship, check your annuity contract for details. It should clarify what situations qualify you for a withdrawal.
3. Annuitize Early (Convert to Income Payments)
If you’re wondering how to withdraw money from an annuity early because you need a regular income now, you can convert your annuity from the accumulation phase to the payout phase. Your payouts may be smaller than if you’d waited longer, but larger than what you’d get with a 10% free withdrawal.
4. Stretch Out Withdrawals Using Free Withdrawal Provision
If you have ongoing non-emergency financial needs and want to know how to withdraw money from an annuity early, consider making use of the annual 10% free withdrawal for a few years in a row. This strategy allows you to access a significant amount of cash while spreading out the tax impact.
5. Surrender the Annuity (and Pay Surrender Charges)
This option should only be a last resort, and if you’re just wondering how to withdraw money from an annuity early, it’s not an ideal strategy. Surrendering the annuity may lead to several charges:
- A surrender charge (usually starting at 7 to 10% and lowering each year)
- Income taxes on the earnings portion
- A 10% IRS penalty if you’re under age 59½
If you’re considering this option, talk to us first! We may be able to help you choose an alternative.
Ready to Make the Most of Your Annuities?
If you’re wondering how to withdraw money from an annuity early, the above options may give you some ideas. However, it’s generally wise to seek out advice tailored to your individual situation. That’s where Scottsdale Wealth Advisory comes in.
Our team is here to help people like you work toward a more fulfilling life journey. Through personalized financial planning, forward-thinking strategies, and unwavering dedication, we align your financial road map with your aspirations so you can have the freedom to live life on your terms.
If you have questions about how we may be able to help you make the most of your money, contact us online today. To schedule your complimentary financial coaching session, call (480) 247-9090, email info@SWAFirm.com, or book directly at calendly.com/BrentMatthew.
Frequently Asked Questions About Withdrawing Money From an Annuity
What’s the best way to withdraw money from an annuity without paying penalties?
The best way to withdraw money from an annuity without penalties is usually through the contract’s free withdrawal provision—typically allowing up to 10% of the account value annually without surrender charges. Some annuities also offer hardship waivers for events like disability, terminal illness, or nursing home confinement. Always review your specific contract terms before taking action.
Can I take all my money out of an annuity early?
Yes, you can withdraw all your money from an annuity early by surrendering the contract, but this often comes with steep consequences. You may face surrender charges from the insurer, income taxes on gains, and a 10% IRS penalty if you’re under age 59½. It’s wise to speak with a fiduciary advisor before making a full withdrawal to explore smarter alternatives.
How can I get income from my annuity before retirement?
If you need income from your annuity before retirement, you may be able to annuitize it early or take scheduled partial withdrawals using your contract’s free withdrawal allowance. These strategies can generate income without fully surrendering the annuity, though doing so early may reduce future payouts. A personalized plan from a fiduciary financial advisor such as Scottsdale Wealth Advisory in Scottsdale, AZ, can help balance today’s cash needs with tomorrow’s income goals.
About Brent
Brent Matthew is the founder and CEO of Scottsdale Wealth Advisory, a full-service fiduciary retirement planning firm serving pre-retirees and retirees across Arizona and multiple states. With a strong commitment to always putting clients first, Brent leads the firm in developing comprehensive, tax-efficient financial plans tailored to each family’s unique goals. He is responsible for researching investment, annuity, and life insurance strategies and building smart asset allocations that reflect both long-term growth and risk management.
Brent is driven by a core belief: “The success of this firm will be measured by the success of the families it represents.” That client-first approach has guided his work since the beginning. He is currently enrolled at the College for Financial Planning and is on track to earn his CERTIFIED FINANCIAL PLANNER® designation. He also holds his Series 65 license and Arizona Life and Health Insurance Producers License.
Outside the office, Brent embraces the Arizona outdoors with “lil B” and their two pomskies, Heimo and Kota. Whether he’s hiking, fishing, dirt biking, skiing, golfing, kayaking, or skeet shooting, Brent finds balance and joy in staying active. He’s also a fan of CrossFit, brunching, and cruising the Phoenix canal system on his beach cruiser—usually with classic tunes from the Marshall Tucker Band, Gordon Lightfoot, or Crosby, Stills & Nash playing in the background. To learn more about Brent, connect with him on LinkedIn.
Advisory services are offered by Scottsdale Wealth Advisory, LLC, an Investment Advisor in the State of Arizona. Insurance products and services are offered through Scottsdale Wealth Advisory, LLC. Scottsdale Wealth Advisory, LLC is not affiliated with or endorsed by the Social Security Administration or any government agency, and is not engaged in the practice of law. Be sure to consult with a licensed financial professional to confirm the accuracy of the insurance product you are considering.
