How to Borrow Against a Fixed Annuity

An annuity is an investment that is given tax-deferred status by the IRS. Fixed-rate annuities provide consistent returns not tied to the market. The IRS provides rules about taking loans from annuities, and you must abide by those guidelines or be subject to stiff penalties. However, just because the IRS allows for loans against fixed annuities does not mean that your annuity does. Your annuity administrators may have their own rules governing whether loans can be taken out and how much you can remove from the annuity.

Step 1

Review your annuity paperwork and look for provisions for loans. If you cannot locate your annuity paperwork, contact your annuity provider and ask them to provide you with a new copy.

Step 2

Contact the administrator of the annuity and request current annuity loan information. This will include things like the current interest rate for repayment, the annuity's maximum withdrawal amount or percentage, when the loan repayment will begin.

Step 3

Review the loan information provided by your annuity administrator and decide whether the terms are agreeable to you. Take into account things like debt load and income when you decide whether you can afford to repay your annuity as scheduled.

Step 4

Request a loan application for your annuity from the administrator and fill it out completely. As you are borrowing your own money, creditworthiness is not a factor. The loan application details the amount you wish to borrow.

Step 5

Submit the application to the annuity administrator and wait to be approved. The approval letter will contain the terms of the loan, including when repayment will begin, the interest rate that you will be charged, and the amount of the loan. If you understand and agree to the terms, you will sign the approval letter and return it to your annuity administrator.

Step 6

Receive your check from the annuity administrator and keep all documentation on hand for use when filing you tax return. You will need to document that you took a loan on your fixed annuity and that it is within the guidelines set by the IRS to avoid penalties.

Step 7

Repay your annuity loan as agreed. As with all financial loans, this is extremely important, as defaulting on your annuity loan can trigger other penalties and fees and compromise your long-term savings.

Items you will need

  • Annuity paperwork

Tip

  • The IRS limits annuity loans to 50 percent of your annuity balance or $50,000, whichever is less.
  • If you are married, you will have to get your spouse to sign the annuity loan document, because borrowing from the annuity affects your spouse's future retirement as well as your own.

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