Selling My Annuity

In the face of an investment opportunity, large amounts of debt or unexpected medical expenses, selling part or all of your annuity may give you the financial freedom you need.

Annuity owners invest in an annuity agreement for financial stability after retirement or as a trust to secure their families’ futures. But when life throws a curveball, annuity payments could be the short-term solution for long-term debt and unplanned expenses. If that’s the case, annuity owners have the option to sell some or all of their annuity payments for an immediate lump sum.

Selling annuity payments could be the solution for an array of financial woes. Whether that includes buying a new house, paying for a new car, paying for college tuition or even balancing medical expenses, cashing out a portion of your annuity could be the solution to avoiding unnecessary debt.

However, it is important to understand the risks when deciding to sell a portion or all of an annuity. Selling an annuity comes with a slew of transactional fees, interest fees, and other costs depending on how early annuitants withdraw funds. It can also reduce the number of future payments an owner or his beneficiaries receive.

Reasons for Selling

There are plenty of reasons for selling annuity payments, but some of the most common include:

  • Losing a job
  • Investing in a business
  • Paying medical bills
  • Paying off debt (student loans, credit card bills, etc.)
  • Paying for school tuition
  • Buying a new home
  • Buyer’s remorse

Whatever the reason, it’s important annuity owners know the best selling options to cash out on their investment.

Selling Options

Annuity owners have several options when selling their payments, including selling the entire annuity, part of it, or a lump sum amount.

Prior to selling your annuity, it’s important to seek counsel. During your consultation with CBC Settlement Finding, our customer representatives will be able to answer any questions you may have regarding the selling process and offer suggestions. It is also important to consult your attorney or accountant before deciding to sell your annuity. In many states this is legally required.

Entirety Purchase

The entirety — or straight — purchase is the most common option in selling an annuity. This strategy includes selling the annuity for the full term of the contract. This means the entire investment is emptied, providing the owner with a lump sum of cash in hand. The entirety purchase eliminates any chance to receive future income payments from the annuity contract, but in turn provides the opportunity to invest or pay off debt using a lump sum.

Partial Purchase

A partial purchase involves selling a portion of an annuity for a temporary period of time in exchange for a lump sum. If an annuity owner has a 10-year contract but needs money for a new car now, he can sell his annuity from years one to three in exchange for a lump sum. However, for three years, the annuity payments will stop. Once those years pass, he will begin to receive the steady stream of annuity payments for the remainder of his contract.

Lump Sum Purchase

Similar to a partial purchase, an annuity owner can opt to sell a portion of their investments in exchange for a lump sum. The difference is that the amounts are more specific. If an annuitant needs a set amount of money to repair a house, the amount will be taken from the future annuity income stream.

The Annuity Selling Process

Although the annuity selling process is easy, it can be a lengthy one.

Annuity Sale Factors

When considering whether to sell your annuity, it’s also important to consider all the factors involved with the sale, including the value of your annuity, discount rates and tax implications.

  • Discount Rates – When you sell your annuity, you will not be paid the full amount the annuity is worth. In exchange for receiving a lump sum up front, you will agree to sell your annuity at a discounted amount based on predicted future interest rates. This percentage is called a discount rate. When researching annuity buyers, make sure to ask what discount rate the company prefers to use. The lower the discount rate, the more money the seller will receive in their lump sum payout.
  • Annuity Value – Besides the discount rate, other factors that will impact the value of your annuity, or how much a buyer will agree to purchase it for, are how much you wish to sell, the current economic conditions, predicted future economic conditions, fees or charges your annuity carries and frequency of your payments.

How Much is My Annuity Worth?

The value of an annuity greatly depends on the company the annuity owners have invested with and the number of payments or amount they plan to sell. Before investing in an annuity, take some time to shop around to discover which company will present you with the most competitive pricing and the least amount of withdrawal fees.  Withdrawing annuity savings early can increase the amount of interest needed to pay for a lump sum of your earnings.

In addition, the amount of annuity payments owners wish to sell will determine the amount of cash they get up front. The larger the portion of annuity they sell, the larger the lump sum they receive. However, it is imperative to understand annuity owners will never receive the full amount of their investments. In order to get money up front, annuitants will have to pay interest on their annuity portions.

Pros and Cons of Selling

Cashing out on annuity payments can help to alleviate debt and other financial strains. On the other hand, selling your annuity can impact your financial future. Before making such a significant financial decision, the annuity owner must weigh the pros and cons. Sometimes short-term pleasures can affect a long-term financial cushion.

Pros to selling your annuity include:

  • Instant Cash – If you need quick cash for an emergency payment, investing in a new home or any other incidental, annuity owners have more efficient access to funds versus waiting years for the first payment.
  • Less Debt – Selling annuity payments can help to pay off debt once they’re cashed out. If you have college loans that need to be paid off or if you are still in debt from a home repair, sold annuity payments can help.
  • More Options – Annuity owners do not have to sell all of their payments for cash. There are a multitude of options to receive quick cash while still being able to invest in a future financial cushion.

Cons to selling your annuity may be:

  • Reduced Future Income – Although quick cash can help to prevent financial woes, annuity owners must remember that selling your annuity early can affect your long-term retirement savings and investments. Using payments now reduces the number of payments you’ll receive in the future.
  • Buyer’s Remorse – Using invested payments for unnecessary expenses can hurt in the long-term. Easier access to a lump sum of money can lead to irresponsible spending habits and unnecessary purchases.
  • No Full Price Payments – If you to choose to sell half of your annuity payments, you will not receive the entire half in a lump sum. The amount of transactional and withdrawal fees charged determines the amount of interest you will have to pay to receive immediate cash.

FAQs about Selling Your Annuity Payments

Will I Get Taxed When I Sell My Annuity For Cash?

Whether or not annuity payments are taxed when sold to a structured settlement buyer depends on the nature of the annuity. In most cases, such a transfer is tax exempt under current Internal Revenue laws.

This said, there are many different kinds of annuities, and these are different from the kind of structured settlements that one may receive from a successful lawsuit or a large insurance settlement. An annuity may come from some type of monetary account or a life insurance policy. Annuities from a 401(k) or other retirement account are taxed as soon as you start drawing out the money at retirement, though they are tax-deferred while the worker is making contributions.

Keep in mind that unlike a structured settlement from a lawsuit, an annuity is an investment vehicle that the beneficiary contributes to over time, building a cash reserve from which s/he can receive regular payments later on (a good example is a life insurance policy).

There may or may not be tax penalties if you sell an annuity for cash. A great deal depends on the nature and source of the annuity, whether you are the original owner or received it as a gift or legacy. If you have questions about the tax liability associated with selling an annuity, it is strongly recommended that you consult with a tax attorney or CPA prior to contacting CBC.

Why Do I Need Court Approval To Sell My Annuity Payments?

When you are looking to sell your future payments, it may not be the best idea. Perhaps you rely heavily on the income or the offer you have received isn’t the best you can do. This is why selling your future payment requires court approval. The courts are supposed to review the transaction to determine if it is in your best interest. So how can they do that if they don’t know why you need the money? Sure it is in the documentation but hearing the reason directly from you makes a huge difference.

Prior to 1970, injured parties would receive cash lump sum payments. Due to a series of unfortunate events in Canada and Europe, there was a need for settlement money to last throughout an injured party’s lifetime. As a result structured settlements became popular. For over 30 years, the federal government has been encouraged their use even for settlements less than $10,000.

However, sometimes the annuitant’s needs change requiring access to their future payments sooner than planned. In order to protect their rights, forty-eight states and the federal government have enacted consumer protection statutes establishing specific conditions regarding the sale of future annuity payments. Under the federal law, court oversight and approval is required for individuals choosing to sell structured settlement payments to a third-party. The statutes vary by state but they’re designed to protect the interest of all the parties involved especially the seller.

Let CBC Help

Our team of experienced, caring professionals will make the process of selling some or all of your structured settlement or annuity payments easy.