What Happens to an Annuity at Maturity? 5 Options

Quick Answer: When your annuity matures, you can renew it, annuitize, roll to a new annuity, cash out, or do a 1035 exchange. Here is what each option means for your taxes and income.

Understanding Annuity Maturity

Annuities are popular financial products designed to provide guaranteed income and protect assets. When an annuity reaches maturity, it marks the end of the contract term. This is a pivotal moment where annuity owners must decide the next steps for their investment. The maturity period can vary significantly, ranging from a few years to over a decade, depending on the type of annuity and its specific terms.

Your Options at Annuity Maturity

Upon reaching maturity, annuity holders have several options to consider. Each choice can impact your financial goals and tax situation, so it's crucial to understand the implications of each.

Renew Your Annuity

Renewing your annuity allows you to extend the contract, potentially securing new terms or interest rates. This option can be beneficial if you want to continue growing your investment with the same provider.

Annuitize Your Contract

Annuitizing converts your annuity into a stream of regular income payments. This option provides financial stability, as it can offer a steady income for a set period or even for life. However, once you annuitize, the decision is typically irreversible.

Roll Over to a New Annuity

Rolling over your funds into a new annuity contract can provide fresh opportunities for growth and income. This option might be attractive if you find a product with better terms or features that align with your current financial goals.

Cash Out Your Annuity

Cashing out provides immediate liquidity by withdrawing the entire balance as a lump sum. While this offers flexibility, it may result in significant tax implications, especially if the annuity was funded with pre-tax dollars.

Perform a 1035 Exchange

A 1035 exchange allows you to transfer your annuity funds to a new contract without triggering immediate tax liabilities. This option is beneficial if you want to switch to a different annuity product that better suits your needs.

Option	Benefits	Considerations
Renew	Continued growth, new terms	Potential lower interest rates
Annuitize	Steady income	Irreversible decision
Roll Over	New growth opportunities	Potential fees
Cash Out	Immediate liquidity	Tax implications
1035 Exchange	Tax-deferred transfer	Complex process

Frequently Asked Questions

What is an annuity maturity?

An annuity maturity is the point at which your annuity contract ends, and you must decide how to proceed with your investment.

Can I renew my annuity after it matures?

Yes, you can choose to renew your annuity contract, potentially securing a new interest rate or terms.

What are the tax implications of cashing out an annuity?

Cashing out an annuity may result in taxable income, depending on how the annuity was funded and any growth it has experienced.

What is a 1035 exchange?

A 1035 exchange allows you to transfer funds from one annuity to another without immediate tax consequences.

How does annuitizing an annuity work?

Annuitizing converts your annuity into a stream of income payments, providing regular income for a specified period or for life.

If you're approaching or past your annuity's maturity date and want personalized guidance on your options, find a licensed independent advisor near you who specializes in fixed and indexed annuities.