What Are the Best Tips for Selling an Annuity?

Malcolm Tatum
Malcolm Tatum

The decision to sell an annuity is one that calls for careful consideration. Typically, this course of action only occurs when the owner encounters some sort of unforeseen event that makes it more advantageous to sell that annuity, even at the cost of severe losses and penalties. If selling an annuity is something that cannot be avoided, there are a few things that investors should keep in mind, including the need to minimize the penalties and possibly waiting as long as possible in order to reduce the overall amount of loss.

Selling an annuity should generally be avoided unless the recipient has no other options.
Selling an annuity should generally be avoided unless the recipient has no other options.

One key tip for selling an annuity is to remember that in most nations there will be significant tax issues generated as the result of the sale. Many types of annuities involve the deposit of funds on a tax-deferred basis. When that annuity is sold, the former owner must settle the tax obligation for an amount based on the total proceeds in the annuity account on the date of the sale. Depending on exactly how much money is in the account, the tax burden may consume all of the interest earned over the years, as well as a portion of the principal.

Along with the tax obligation created by selling an annuity, there is also the possibility of incurring other types of penalties and fees. Those costs can further erode any net proceeds generated from the sale. Depending on the combined total of taxes and other fees assessed, there may be very little remaining that can be used to manage whatever financial crisis led to the original decision to sell.

Another factor to keep in mind when selling an annuity is that the chances of finding a buyer willing to pay an amount equal to the current worth of the investment may be somewhat difficult. This is especially true during periods of economic downturn. Other investors will be looking for deals that offer immediate returns, which means that pricing the annuity for less than the current worth may be necessary in order to sell the asset quickly.

With some types of annuity plans, it is possible to sell a partial interest in the asset while still retaining control of the majority of the annuity. This is sometimes true with structured settlement annuities and is worth looking into. Take the time to project the amount of returns that would be generated by selling a partial interest, allowing for penalties and taxes. In some cases, the difference in the losses would be enough to make this approach sufficient to generate the cash needed to manage a crisis, and leave the door open for possibly repurchasing that partial interest at a later date.

The general rule for selling an annuity is to avoid doing so unless there is no other recourse. For this reason, every possible solution should be investigated before taking this drastic step. If selling an annuity is the only plausible move to make, do engage the services of a professional to structure and manage the sale. A professional will seek to secure the best possible price for the investment, allowing the original owner to keep the overall amount of loss to a minimum.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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