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For example, if you purchase an annuity with a seven-year surrender period and withdraw funds in the third year, you may face a 10 percent penalty on the withdrawal amount.
Therefore, the future value of your annuity due with $1,000 annual payments at a 5 percent interest rate for five years would be about $5,801.91.
If you’re under 59½, you may also face a 10 percent early withdrawal penalty. With an annuity, you’ll pay income taxes each year on the amount you receive.
Fixed annuity method using an annuity factor from a reasonable mortality table. [2] The interest rate that can be used in the latter two calculations can be any rate up to 5% per annum, or up to 120% of the Applicable Federal Mid Term rate (AFR) for either of the two months prior to the calculation. [2]
Most indexed annuities do provide a penalty-free amount that may be withdrawn each year (for example, the right to withdraw 10% of the annuity’s value per year). These products may also waive surrender charges if the policy is annuitized (converted into an immediate annuity that would generate income payments over a specified period of time ...
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