Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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Can I withdraw annuity principal?

You can withdraw annuity principal during the accumulation phase of the plan if you wish. The insurance company that you have the contract with may charge you administrative and surrender fees if you choose to do so, though.

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Depending on the company you are dealing with, you may be able to make a certain number of free withdrawals each year without having to pay a penalty.

Annuity Defined

An annuity is a contract between a policyholder (the annuitant) and an insurance company. The annuitant deposits funds into the plan, either as a lump sum or in a series of deposits made over time.

The funds are invested on the annuitant’s behalf and, while in the plan, grow on a tax-free basis. At a set time, the annuitant receives regular payments from the annuity. The payments can be made annually, quarterly or monthly and the payments continue for a set time or for the annuitant’s lifetime, depending on the plan chosen.

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Withdrawing Annuity Principal Amounts

As long as you are making deposits to the annuity, which is referred to as the accumulation stage, you can withdraw some or all of the funds invested. The insurance company may charge you a surrender fee for doing so.

The insurer may allow an annuitant to withdraw up to 10% of the amount held in the account free each year. Any withdrawals made above that amount are subject to a surrender fee. The amount charged is a percentage of the amount withdrawn. If the funds have been held in the plan for six years or more, the insurance company may not charge a surrender fee. Each company’s policy regarding surrender fees will be stated in the language of the insurance contract.

Before you decide to make a withdrawal from your annuity, consider that any amount you take out of the fund will be subject to income tax. If you are younger than 59 1/2, you will be charged an additional 10% as a penalty for early withdrawal.

Exceptions to Surrender Fee Rules

In some circumstances, the insurance company will waive the surrender fee it would otherwise charge for withdrawing funds from the plan. Here are some scenarios:

  • For instance, if the annuitant dies, the funds would be surrendered to his or her beneficiary, if there is one. The beneficiary can then decide whether to receive the money as a lump-sum payment or if he or she would like to roll them over into another annuity that will pay out a regular income.
  • The surrender fees may also be waived if the annuitant becomes critically or terminally ill. The insurance company would require proof of the annuitant’s circumstances to waive the surrender fee.
  • A third circumstance where the insurance company may agree to waive the surrender fee is when the annuitant has lost his or her job. During a period of unemployment, he or she may need to access these funds to pay bills or living expenses.

The details of the insurance company’s policy about whether it will agree to waive surrender fees in certain circumstances will be in the annuity contract. Contacting the insurance company directly and explaining the situation may mean that the fees will be waived, even if the company usually charges them for all early withdrawals.

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Withdrawal Phase of the Annuity

During this phase, the annuitant receives regular payments from the annuity plan. The amount payable in each installment depends on the amount invested and the age and gender of the annuitant. Under the contract, if the annuity promises payments for life, the payments are calculated so that the insurer can uphold its end of the contract.

If an annuitant wants to have access to a certain amount of cash, he or she could consider making a withdrawal from the plan shortly before the regular payments are due to start. Before doing so, he or she should consider the fees and tax consequences of taking part of principal out of the plan. The entire amount of the withdrawal will be subject to income tax as of the date of withdrawal, along with any fees the insurance company may charge at the time.

A person who sets up an annuity is free to withdraw some or all the funds at any time during the accumulation phase of the plan. Once this period has passed and the annuitant has started to receive regular payments under the contract with the insurance company, he or she will not be able to take any extra money out of the plan.

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