Annuity Transfer (Q & A)

Feb 2016


Q         Dear Rick:

To make a long story short, I have an annuity that is maturing.  This money has been in the annuity for over 20 years.  I received a notice from the company that I have to decide what I want to do with the money.  They basically gave me two options.  The first was that I could cash out the annuity which means I will have to pay taxes on the money.  The second option was that I can open up a new annuity with them and I could continue having the money grow tax deferred.  The new annuity has a 10-year penalty period which doesn’t make sense to me.  I think I’d rather pay the taxes than lock the money up for another 10 years.  I’ve been to a number of your seminars and I know you always say not to let the tax tail wag the dog.  However, at least for the next couple of years while I work, I wouldn’t mind deferring the taxes.  My question is do you have any other ideas?



A         Dear Paul:

I like the way you think.  I agree with you, in today’s world it doesn’t make sense to lock your money up for 10 years. You need to remain flexible and investments with high penalties don’t give you that opportunity.


I do always say that you don’t want to let the tax tail wag the dog; however, I also believe it’s not patriotic to pay more money in taxes than you have to.  We want to be smart with taxes but we never want to forget the ultimate goal is not to save on taxes but rather, to have more money in our pockets.  After all, who would not have wanted to win the recent power ball lottery?  I think most of us would have focused on the hundreds of millions of dollars that ended up in our pockets not what we paid in taxes.


What the annuity company did not tell you is that there is a third alternative; one that makes good economic sense, and at the same time is tax efficient.  Instead of cashing out the old annuity, you can have it directly transferred into a new annuity with a different company where there are no penalties or surrender charges.  Companies such as, Fidelity, Vanguard and Schwab all offer commission-free, no-penalty annuities.  In these annuities you can have the money directly transferred without tax consequences and the money will continue to grow tax deferred.  Because these annuities have no surrender charges or penalties, you can take money out whenever you want without having to worry about penalties and surrender charges.  These types of annuities, in addition to having no surrender charges, also have very low internal fees. Low fees equal higher returns for investors. In other words; this type of annuity is a win-win for investors.

You may ask why anyone would invest in an annuity with high surrender charges. It’s a mystery to me, however, there’s an old adage in the annuity industry, annuities are not bought they are sold. The reason people buy high surrender fee annuities is that they don’t know there are other options available. In order to complete this transaction all you need to do is contact one of those aforementioned companies and work with them to have the money transferred.  It’s simple, it’s easy and most importantly, it will keep more money in your pocket, exactly where it belongs.


Good luck!





Rick is a fee-only financial advisor.  His website is  If you would like Rick to respond to your questions, please email Rick at