Surrender charges are fees you pay if you withdraw more than the free withdrawal amount during the surrender period. Surrender periods typically last 5–10 years. Surrender charge schedules typically start at 7–10% in year 1 and decrease by 1% per year until reaching 0%. Most annuities allow 10% free withdrawals per year without surrender charges. Required Minimum Distributions (RMDs) from qualified annuities are typically exempt from surrender charges.
Key Points
- Surrender charges apply if you withdraw more than the free withdrawal amount during the surrender period
- Surrender periods typically last 5–10 years
- Surrender charge schedules: typically start at 7–10% in year 1, decrease to 0%
- Most annuities allow 10% free withdrawals per year without surrender charges
- RMDs from qualified annuities are typically exempt from surrender charges
- Surrender charges are how insurance companies offer higher guaranteed rates