While annuities might be appropriate investments for those in search of tax deferral, they are also among the most illiquid purchases available. Once the initial 'free-look' period of time has expired, annuity owners are usually locked into the contract for the duration of the term, or they have to shell out a surrender charge to be able to liquidate. Some would believe that even your home's equity is easier and less expensive to take advantage of than many annuities. Be sure to check out the annuity value of your investment before making a change.
Of course, the majority of contracts do permit a quantity to be withdrawn each year with no penalty (usually 10% of the account value). But until recently, if you purchased any type of fixed annuity, then you could not liquidate an additional part your investment before the term ended without paying a penalty, without certain circumstances. Immediate annuities do not even offer you this exit; once they start paying, they cannot be surrendered for their annuity value.
But that has altered, thanks to an emerging secondary trading niche for annuities and the availability of annuity value to be harvested. This recently established market allows annuity owners to get a price for their contracts then sell them to other investors in a arm's length transaction. Selling your current annuity in this manner will prevent you from paying early withdrawal fees or any other penalties that would be assessed from the issuing company. Always check your annuity value before making any changes because you want to know how much you can get from the insurance company vs an investor.
Another advantage of the secondary market for annuity value provides is that you do not have to sell your whole contract if you don't want to. By example, if you hypothetically own a fixed annuity which pays $2,000 per month, and your monthly expenses are only $1300 per month, then you could sell your $700 per month difference to an independent buyer. You could get bids for that income stream to harvest the commensurate annuity value as a lump sum.
Finally, make certain that you understand the particular annuity tax ramifications of your sale. This type of transaction will result in capital gains tax, and must end up being weighed against the consequences associated with keeping the contract. However, in case you have estate tax issues, an annuity sale can be used to turn some or all of your present income stream into cash. The selling proceeds can then be used to purchase other types of investments that allow for a new step-up in basis at death.
If you would like to know more about ways to sell all or part of your own annuity contract in the secondary marketplace, contact a local annuity agent who can get you bids for your annuity value.
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