If you have an annuity product and have decided that it is not right for you now may be a good time to consider cashing in the annuity and transferring it to a more desirable investment since any gain within the annuity may have evaporated. With the recent decline in the overall stock market the value of your annuity could be at or below your cost also known as your basis. If you withdraw the annuity before age 59 ½ there is a stiff 10% penalty imposed by the IRS on the amount of the annuity earnings which is the amount currently in the annuity over your investment. Be aware that some annuities unfortunately charge a fee if you cash in early called a surrender fee.
Annuities allow investors to accumulate earnings from their investments tax deferred. Tax deferred simply means that you will have to pay taxes on those earnings eventually. The assumption is that you will pay when you are older and are thereby in a lower tax bracket which equates to a lower tax rate. The disadvantage of annuities is that annuity expenses can be high and the investment choices limited. The advantage of an annuity is tax free accumulation of wealth.
Only you can determine whether an annuity product is best for you based on your financial situation and your future plans. If you should decide that it is not now may be a good time to make a change. The basis can easily be obtained by calling the company with whom you hold the annuity contract. Be sure to ask about surrender fees. Consult your tax advisor regarding your specific situation.