Can I Sell My Annuity?
People have several different reasons for purchasing annuities, including persistently low interest rates and stock market volatility. But many investors discover that owning an annuity may not be the smartest option for their situation after all. Can I sell my annuity is one of our most popular FAQs. Selling an annuity can be a little tricky so here’s some things to know:
Can I Sell My Annuity?
Yes, you can sell an annuity to a third-party if it is ‘transferable’-check your documentation or speak with your annuity provider if you’re not sure. Also, you may be able to sell it in case of emergency. A financial crisis might qualify for just that. Again, make sure you have all the documentation pertaining to your annuity, you will need it when executing any sales.
You can also sell your annuity in parts. Here are three different ways you can sell all or some of an annuity:
1-You can sell your annuity as a ‘straight purchase’ where you will get a one-time lump sum for your annuity, typically somewhere in the neighborhood of 75% of its value, depending on the buyer. If I was to sell my annuity in a straight purchase, I would no longer receive the annuity payments.
2-If you’re unsure of selling the annuity in its entirety, you have the option of selling as a ‘partial purchase’. If you are having temporary cash crunch, this is a way to get a lump sum payment but also continue receiving the annuity payments at a predetermined time in the future.
3-You can sell your annuity as a ‘split purchase’. For example, you could sell half of the annuity and get an up front lump sum payment for half the annuity but still keep receiving the scheduled annuity payments at 50% of their former value.
You can shop around different annuity buyers and get information by filling out their quote forms, where you’ll receive a free estimate of what you’re likely to receive from selling your annuity. You can also use an insurance broker who might be able to a better deal through contacts and knowing the tricks of the trade when it comes to negotiating with an annuity buyer. If your state doesn’t have a structured annuity protection law, you should consult an attorney to walk you through how to sell the annuity.
Exchanging My Annuity
If you decide after all “I don’t want to sell my annuity” and opt not to cash out of your annuity, you may still be able to exchange it for another annuity using the IRS tax code’s ‘1035 Exchange’.* For example, this might be a good idea if market interest rates have risen and are more attractive than the terms of your annuity. Keep in mind, you’ll probably still incur surrender fees with the exchange.
To receive the favorable tax treatment under the IRS and not incur immediate recognition of a gain or loss, 1-the new annuity must be of ‘like-kind’ property, 2-the annuity owner, annuitant and beneficiaries must remain the same and 3- the annuity can not be cashed out and used in the exchange.*
Another reason you may want to consider transferring an annuity is for a more financially stable issuer. The protection provided by state insurance for fixed annuities covers up to $250,000, so any amount you have above that level is in jeopardy if the insurance company you have the annuity through goes bankrupt.
Annuities in an IRA
Is your variable annuity in a tax-deferred retirement account such as a traditional IRA? One of the advantages of variable annuities is tax-deferred growth. But IRAs are already tax-deferred (tax free for Roth IRAs since you’ve already paid the taxes before you contributed) so the only difference is probably the fees you’re paying, which are usually higher with an annuity. Although annuity fees have come down from the lofty 8% range of a few years ago, they are still higher than mutual funds and certainly higher, by several multiples, than exchange traded funds.
In other words, there is likely no additional tax advantage of holding an annuity in a traditional IRA. In fact, Heather Dzielak, Vice President of Lincoln Financial Group offers, “If [the] primary goal is tax deferral, variable annuities within IRAs offer no additional tax advantage over the IRAs inherent tax deferral feature.”**
Some financial planners offer annuity conversions where the funds will go into more traditional stocks and bonds held at their brokerage firm. Some financial advisors may even reimburse you for the surrender charges you may incur upon transferring the annuity to the new brokerage account. This is something you may want to consider if you’re unhappy with the fees you’re paying for, or the performance of, the annuity.
Finally, if your annuity is not transferable, you might be able to get a bank loan against it, by listing the annuity as an asset. This isn’t optimal, but the end result is essentially the same, you get a lump sum of money up front if you qualify.