Question About Index Annuities

[Drifting]

This is just a question of curiosity. With an index annuity, once you turn age 59 1/2 do you have the option to take partial withdrawals or even a full withdrawal, or at that time do you automatically have to enter the "income phase" for life?

 

[Newby]

This is just a question of curiosity. With an index annuity, once you turn age 59 1/2 do you have the option to take partial withdrawals or even a full withdrawal, or at that time do you automatically have to enter the "income phase" for life?

You can pull out 10% per year with no penalty during the initial years. Once you get past the penalty years (usually 5,7 or 10 years) you call pull out all of it if you want.

The income for life is just one option.

 

[DHK]

With annuities, I always talk about two sets of rules: IRS rules and "House" rules.


The IRS rules are that you shouldn't take money out of a Non-Qualified annuity until you are 59 1/2 to avoid a 10% penalty tax on your earnings. Remember that with NQ annuities, it's LIFO - Last in (interest earnings), First out... to be taxed.


The "House" rules are in regards to any "free withdrawal" amount - typically 10% per year. Anything above the 10% will be subject to a surrender charge, unless an exception exists. (Nursing home stays and other things depending on the policy/carrier.)


Just because you can pull out 10% ("House" rules) doesn't mean it comes out tax free. Interest credited still comes out first and is taxable.


If you have any "lifetime income benefit riders"... it may be a lower % or you risk losing the lifetime income benefits. They will usually impose a limit of 5% per year - see any rider information for the details. You still won't pay a surrender charge until you withdraw 10%, but you risk screwing up the lifetime benefit.


If you choose to Annuitize the annuity, you essentially "flip a switch" to turn on lifetime income. This is optional. You don't have to do it, but it is there and you may have other payout options, such as 10-year period certain + lifetime income, things like that.

 

[Josh Landis]

This is just a question of curiosity. With an index annuity, once you turn age 59 1/2 do you have the option to take partial withdrawals or even a full withdrawal, or at that time do you automatically have to enter the "income phase" for life?

Good information from DHK. Also, (speaking in terms of house rules) keep in mind that it all depends on the carrier. Like DHK said, typically it's 10% withdrawals, but with most carriers you have to wait a year. Some you can take a partial withdrawal in the first year. Also, there may be a limited number of free withdrawals available, so just make sure you check it this out with the particular carrier.