Withdrawal Privilege Options
As discussed earlier, many annuities allow an owner to withdraw a percentage of their dollars each year without any surrender charges or market value adjustment. Naturally, the annuity contract spells out the conditions and limitations for this free withdrawal. However, it is important for the consumer to know that income taxes and a possible excise tax penalty still apply. In other words, just because the withdrawal is insurance company penalty free, it is not necessarily income tax free.

Many annuities allow for 10% of the annuity value to be withdrawn each policy year free of surrender charges. Many annuities do not allow for “free” withdrawal to be made in the first policy year and the free withdrawal can be limited to one withdrawal per year (as opposed to 2 withdrawals of 5% each). Some annuities offer cumulative withdrawals in year 5 if no prior withdrawals have been made and other annuities can allow for all earnings to be withdrawn free of surrender charges.