Considering An Annuity Cash Out 4 Things You Must Consider

Are you receiving annuity payments from a structured settlement? Are you in need of a lump sum of money now? If so, you might want to consider taking annuity cash out. There are a few things that you should consider to help you decide if this is the option for you.

Do the benefits of taking the money now surpass the benefits of keeping the money in my annuity plan?

Your annuity plan is set up to provide you with continuous and periodic payments to help you take care of your current and future expenses. This gives you some security now and as you age. But there might be some reasons to take some or all of the money now, especially if it will help give you more stability or a better investment.

An example would be if you took some of the money now to purchase a home. You and your family need a place to live. Yet buying a home with a mortgage can add hundreds of thousands of dollars to the cost of a house. Mortgage interest is a major expense to buying a home. If you can take an annuity cash out to pay cash for a home, you can avoid mortgage interest. Investing in a home not only gives you a place to live, but it can earn you equity for the duration of your ownership.

It pays to talk to a real estate expert as well as a financial advisor to determine if an investment in a home surpasses the investment aspects of your annuity. (Perhaps your annuity earns a high interest rate which could be more profitable than investing in a home. Your financial advisor can help you make that determination.)

Will I have enough money for the future?

When considering taking an annuity cash out, ask yourself if you will have enough money for the future. Do you have other retirement investments other than your annuity? If so, you might be able to depend on those for your retirement years. Or, if you will be using the annuity for an investment that is expected to earn more than your current annuity interest rate, you might be able to fund your retirement with those profits.

However, if you plan on using the annuity cash out to fund a high risk investment, you might want to consider leaving some or most of the money in the annuity account to secure your future.

How much money will I get for my annuity?

An annuity cash out will surely get dollars in your pocket, but be sure to understand how many dollars.
First of all, when you find a buyer for your annuity, he or she will determine the current value of your future annuity payments. A formula using the payment amount, the discount rate for each period, and the number of payments, determines the present value of your annuity. A present value annuity table can also be used to make this determination.

Once this value is determined, the annuity broker will provide you with a quote for your annuity. This will include the broker’s service fees as well as any attorney fees or court fees that are incurred during the selling process.

Once you receive a quote for your annuity cash out, you should seek the advice of a tax professional to determine what, if any, tax you will be required to pay. If your money was awarded as a structured settlement due to injury, you might not be paying any taxes on the annuity now and therefore will probably not be paying tax on the annuity cash out. But because each annuity policy is unique, you will want to seek the advice of a professional. Additionally, don’t forget that however you invest the money, once the annuity cash out is completed, you will likely have to pay taxes on the new investment if it is not tax exempt.

Take the complexity out of an annuity cash out by talking with a Strategic Capital representative. Strategic Capital wants to be sure you understand each step of the process so that you can make the best decisions for you and your family.