An annuity is an investment vehicle that allows you to save money for retirement while deferring taxes on earnings. You can choose when you want your annuity to start disbursing payments, such as at your retirement age. However, if you need the funds immediately, it is possible to liquidate your annuity contract. You will have to pay taxes and surrender charges to the insurance company providing the annuity.
Review your annuity contract to determine if you are eligible for any disbursement exceptions. For example, some contracts may allow you to liquidate the annuity without penalties if you need the money for a health emergency such as open heart surgery.Step 2
Locate the "free look" provision clause in the contract. This provision is a set period, such as 20 days, when you are allowed to cancel the annuity contract and receive a full refund without restrictions. If you are not within this time period, you will have to pay the applicable charges, taxes and fees.Step 3
Contact the insurance company to determine the surrender charge and the length of the surrender period. In most cases, the surrender charge decreases with each passing year until it is erased. This is called the surrender period. You can avoid paying the insurance company a large surrender charge if you liquidate your annuity outside the surrender period.Step 4
Review the disbursement options. You can avoid paying a 10 percent tax penalty for liquidating your annuity if you transfer the funds into another annuity instead of withdrawing the money. This transfer is called a 1035 exchange. This is an option if you don't need the money in your annuity but want to get out of your current contract without paying a penalty.Step 5
Get a surrender or withdrawal form from the insurance company. Complete the form, including how you want the funds to be disbursed, such as a check, and if you want taxes for the disbursement to be withheld automatically. Send the form to the insurance company and follow up to ensure it was received and your annuity is being liquidated.
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