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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How do I cash in my annuity?

While most annuity investors plan on long-term payouts from their contract some years into the future, life changes may present the need for immediate emergency cash. Such needs may prompt an investor to ask how he can cash in his annuity right away, rather than continue to take regular payments. The simple answer is to sell it to a finance company. However, that’s not always the wisest choice.

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You have probably seen the television commercials offering cash right now for your annuity or structured settlement. The finance companies that advertise such services purchase from you the remaining value of your contract.

Of course, they must make money to stay in business, so they pay you less than the contract value. Where annuities are concerned, you can sell full or partial value of whatever remains on your contract.

Think Long and Hard Before Cashing In

As previously mentioned, finance companies willing to purchase your annuity will sometimes offer you a very reasonable amount, but more often than not, they only offer pennies on the dollar. They target their advertisements to those who believe they are in a desperate situation, banking on the fact that such desperation will cause the seller to make the deal despite the low return.

Getting low-balled by a finance company presents several problems. The most obvious is that you will not get the full return on your investment that you originally planned. But the second issue, which revolves around how annuities are taxed, could end up hurting you even more substantially.

Remember, according to tax law, the payments you receive from your annuity count against earnings first. So if your total return over the life of the annuity is 12%, your payments up to that amount, no matter how long a time they are spread out over, are taxed as both income and capital gains. If you cash in your annuity before the 12% earnings have been paid to you, the remainder of that tax burden comes out of your lump sum.

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Other Alternatives

When people are faced with a financial crisis they often tend to focus on the easiest way to solve it rather than what is most sensible financially. If you find yourself in such a situation, look for alternative methods of solving the crisis before agreeing to cash in your annuity.

For example, a personal loan at 8% may end up costing you less in the long run than what you would lose by cashing in your annuity. If your credit history is good, and you have reliable source of income, a personal loan may be a better way of dealing with things.

You may also have a savings account which earns considerably less interest than your annuity. During times of financial crisis the savings account is the first place to look. That’s the whole purpose of saving. Once the crisis has passed you can begin to rebuild your savings through your annuity payouts. This approach solves the crisis without sacrificing the annuity.

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Other Investments

Annuities are complicated investments with complicated tax implications. If you are considering cashing in an annuity, talk to a tax expert about all the annuity taxes and fees first. He will be able to assess your position and determine if other investments you have would be better to cash in. Stocks or bonds, for instance, may be a better option even though they bring you higher returns in the short-term.

Since you’ve most likely already paid tax on your stock market gains for the previous year, cashing them in may be the most logical option in terms of the tax man. Your advisor should be able to give you a fairly good idea whether or not the lost investment your stock futures would still be better than losing the value of your annuity.

Other investments like real estate, precious metals, and durable goods offer similar ways to raise cash quickly. The fact remains however, that investing is a risky business no matter what the vehicle you chose.

A disciplined approach to investing is one of the keys to being successful. An annuity which is managed wisely is a good investment tool, as part of an overall portfolio, for retirement purposes. But losing discipline, and cashing it in prematurely, could ruin the retirement plans you put in place. Be careful. Consider all the options available to you before you cash in your annuity.

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