What Happens to an Annuity at Maturity? 5 Options

Quick Answer

When your annuity approaches maturity, first confirm which deadline is approaching: the end of an interest-rate guarantee, the end of surrender charges, or the contract’s maturity date. These dates can mean different things.

Depending on your contract, you may be able to renew, leave your money in place, begin income payments, move funds to another eligible contract or retirement account, or withdraw money. Before deciding, compare your income needs, access to cash, existing benefits, renewal terms, and taxes. A maturing annuity does not automatically need to be replaced.

First, Understand What “Maturity” Means for Your Annuity

Annuities are insurance contracts that can help people accumulate retirement savings, receive retirement income, or both. But the word “maturity” is often used loosely.

Your statement or renewal notice may refer to:

• The end of a guaranteed interest-rate period. For a fixed annuity, including a multi-year guaranteed annuity, the current rate may expire while the contract continues under renewal terms.
• The end of a surrender-charge period. The insurer’s charge for certain withdrawals may end. That does not necessarily mean withdrawals are free of income tax or other contract adjustments.
• The contractual maturity or annuity starting date. The contract may specify when income payments are scheduled to begin and which elections or extensions are available.

These dates do not always coincide. Ask your insurance company to confirm, in writing, what happens next and whether you must respond by a particular deadline.

The most useful first question is: “What happens to my contract if I do nothing?”

Your Options at Annuity Maturity

1. Renew or Continue Your Existing Annuity

Keeping your current annuity may make sense when you do not need income yet and its terms still fit your plans.

Before renewing, ask:

• What interest rate or crediting terms will apply?
• How long are those terms guaranteed?
• Does renewal begin another surrender-charge period?
• Is there a limited window to withdraw or transfer funds without surrender charges?
• Will existing income or death benefits remain unchanged?

Do not assume the old rate continues or that renewal terms are identical. At the same time, do not assume a new product is better simply because it advertises a higher rate.

2. Annuitize Your Contract for Income

Annuitizing converts your annuity into a stream of payments. Depending on the contract and payout option, payments may last for a specified period, your lifetime, or the joint lifetimes of you and another person.

This may be worth considering if dependable income is more important than continued access to the account balance.

Before choosing, compare:

• Single-life versus joint-life payments.
• Any period-certain or refund protection for beneficiaries.
• Whether payments remain level or include an available increasing-payment feature.
• How much accessible savings you will retain outside the annuity.

Annuitization is generally irreversible. Understand what happens after your death and what access, if any, remains to the money.

If your contract has a lifetime withdrawal benefit, ask how using that benefit differs from annuitizing. A rider’s income benefit base is not necessarily an amount you can withdraw as cash.

3. Move a Retirement-Account Annuity Through an Eligible Transfer or Rollover

If your annuity is held in an IRA or employer retirement plan, the retirement account’s rules matter as well as the insurance contract’s terms.

An eligible transfer or rollover may allow you to move funds without current income tax, but the correct process depends on the account and destination. Not every distribution qualifies; required minimum distributions, for example, cannot be rolled over.

Ask the receiving institution and your tax professional to confirm the process before requesting a check. A direct transfer or direct rollover, where available and appropriate, can avoid some problems associated with receiving the money yourself.

Moving the funds does not necessarily require buying another annuity. Compare the available choices against your income needs, risk tolerance, and need for liquidity.

4. Withdraw Some or All of the Money

A withdrawal can provide cash for living expenses, a major purchase, or another financial goal. However, the amount shown on your statement may differ from the amount you receive after contract charges and taxes.

Before withdrawing, request:

• Your current cash surrender value.
• Any surrender charge or market value adjustment that applies.
• The effect on income riders and death benefits.
• An estimate of the taxable portion, reviewed with your tax professional.

A market value adjustment, where the contract provides one, can increase or decrease the amount available on certain withdrawals.

If you need only part of the money, compare a partial withdrawal with surrendering the entire contract. A withdrawal within the insurer’s “free withdrawal” allowance may avoid a surrender charge, but “free” does not necessarily mean tax-free.

5. Consider a 1035 Exchange for a Nonqualified Annuity

For an annuity purchased outside an IRA or employer retirement plan—a nonqualified annuity—a properly structured Section 1035 exchange may allow a move to another annuity without recognizing the accumulated gain immediately.

This generally preserves tax deferral; it does not erase the gain or make future taxable withdrawals tax-free.

Have the insurance companies coordinate the exchange. Do not assume you can cash out, deposit the proceeds, and later treat the transaction as a tax-free exchange.

Before replacing a contract, compare what you would gain with what you would give up:

• Existing guarantees, income benefits, and death benefits.
• Current surrender charges or other adjustments.
• A new surrender-charge period.
• New fees, rider costs, and withdrawal restrictions.
• The financial strength of the issuing insurer.

A tax-deferred exchange can still be a poor financial decision if the new contract is less suitable for your needs.

Compare Your Options Before Deciding

Option	When it may be worth considering	What to check first
Renew or continue	You do not need income yet and the contract still fits	Renewal terms, deadlines, access to funds, and any new surrender period
Annuitize	You want a defined income stream	Payment options, beneficiary protection, inflation, and loss of liquidity
Eligible transfer or rollover	You want to move an IRA or retirement-plan annuity	Account rules, eligible amounts, destination, and transfer procedure
Withdraw money	You need cash or want to reduce the amount held in the annuity	Taxes, charges, adjustments, and lost benefits
1035 exchange	A different nonqualified annuity may better meet your needs	Exchange eligibility, lost guarantees, new restrictions, and total costs

The best choice depends on what the money needs to accomplish—not just which option offers the highest advertised rate.

Understand the Tax Consequences Before Moving Money

Tax treatment depends on how the annuity was funded and how you take money out.

Nonqualified annuities: Contributions generally come from after-tax money. Under the usual rules, withdrawals before annuitization come from taxable earnings first. A full surrender generally makes the gain above your remaining investment in the contract taxable as ordinary income. Annuitized payments follow different rules for recovering that investment.

Traditional IRA or retirement-plan annuities: Distributions are generally taxable except to the extent applicable after-tax basis or another exception applies. Roth arrangements have different rules.

Withdrawals before age 59½: The taxable portion may also face a 10% additional federal tax unless an exception applies. The exceptions depend on the type of arrangement and the circumstances.

The end of an interest-rate guarantee or surrender-charge period does not, by itself, make a withdrawal tax-free. Consult a qualified tax professional before taking a large distribution or arranging a transfer. [1]

Decide What This Money Needs to Do in Retirement

Before comparing products, consider your retirement budget.

If your Social Security and pension income cover everyday expenses, you may place more importance on access to cash, future growth, or beneficiary goals. If reliable income falls short of essential expenses, an income option may deserve closer consideration.

Use the SafeMoney Retirement Income Gap Calculator to compare your expected monthly income with your expenses.

Treat the result as a planning estimate—not an insurance quote or a guarantee. The calculator does not evaluate your existing contract’s benefits, surrender charges, or tax consequences.

Also consider emergency savings, healthcare expenses, inflation, and whether a spouse would need continuing income after your death.

Before You Decide: A Practical Checklist

Gather your latest statement, original contract, rider documents, and renewal or maturity notice. Then ask:

1. Which date is approaching, and what happens if I take no action?
2. What is the deadline for making an election?
3. What are my account value and cash surrender value?
4. Would renewal or replacement begin new withdrawal restrictions?
5. Which guarantees or benefits would I lose by moving the money?
6. How much accessible cash do I need outside this contract?
7. What would each option mean for taxes and retirement income?
8. How is the professional recommending a change compensated?

Ask for a written comparison that includes keeping your existing contract—not just purchasing a new one.

Frequently Asked Questions

What happens when an annuity matures?

It depends on the contract and which period is ending. Your interest rate may reset, a renewal window may open, surrender charges may end, or income payments may be scheduled to begin. Check the insurer’s notice and contract rather than assuming an automatic cash payout.

Can I renew my annuity after it matures?

Some contracts allow renewal or continuation after a guaranteed term ends. The new rate, surrender provisions, and election deadline may differ from the original terms. Ask the insurer which options apply to your contract.

Do I have to cash out my annuity?

Not necessarily. Depending on the contract, alternatives may include continuation, renewal, income payments, or an eligible transfer or exchange.

Are there taxes when an annuity matures?

A guarantee period ending is not the same as receiving a taxable distribution. Taxes generally depend on whether money is distributed, how the contract was funded, and whether a transfer or exchange qualifies for tax-deferred treatment.

Is a 1035 exchange the same as an IRA rollover?

No. A Section 1035 exchange and an IRA or retirement-plan rollover operate under different tax rules. Identify how your annuity is held before choosing the procedure.

Should I replace my annuity for a higher rate?

A higher rate alone is not enough to decide. Compare the guarantee period, liquidity, insurer, charges, and benefits you may lose. Keeping the current contract can be the better choice.

Get Help Comparing Your Annuity Options

An approaching deadline is a reason to review your choices—not to rush into a replacement.

An independent licensed professional can help you compare available options with your existing contract and retirement-income needs. Ask about their licensing, the insurers they represent, and how they are compensated. Independent does not mean every professional offers every insurer or product.

Find an independent professional through SafeMoney, and bring your contract, latest statement, renewal notice, and income-gap estimate. For tax questions, include your tax professional before authorizing a withdrawal, rollover, or exchange.

Sources

1. IRS Publication 575: Pension and Annuity Income — distributions, annuity taxation, exchanges, and retirement-plan rollovers.
2. FINRA: Annuities — contract types, payout options, taxes, restrictions, and insurer risk.
3. FINRA: Should You Exchange Your Variable Annuity? — replacement considerations specifically for variable annuities.

SafeMoney.com provides financial education, not individualized investment, tax, or legal advice. Contract terms and available options vary. Annuity guarantees depend on the issuing insurer’s claims-paying ability; annuities are not FDIC-insured.