Conversion

• A savings annuity may be converted to an immediate annuity. If you do this, the annuity policy will be converted to monthly payments. You may elect to receive monthly payments for a set number of years or for your entire life. The annuity's savings cannot be retrieved with this method. Instead, the insurer keeps your savings regardless of what happens.
  
  

Rule 72(q)

• IRS rule 72(q) allows you to take systematic payments from your annuity prior to age 59 1/2 without a 10 percent penalty. This penalty is only eliminated if you take equal and substantial payments that correspond with your life expectancy at the age at which you take the distributions. The distributions must be made according to IRS mortality tables and must be taken for at least five years or until you reach age 59 1/2, whichever comes later.
  
  

Effects

• When you take your annuity policy early, you may be subject to insurance company penalties. For example, there is no IRS penalty for converting your savings annuity prior to age 59 1/2, but the insurer may impose a penalty for conversion if you convert your annuity prior to the maturity date of the savings annuity. (This maturity date will be noted in the contract.) Similarly, any amount you remove from your annuity under IRS rule 72(q) must comply with the withdrawal rules. If you do not take payments according to your life expectancy or fail to take payments according to the minimum payment requirements of five years or to age 59 1/2, you will be assessed a 10 percent penalty for early withdrawals.
  
  

Consideration

• Before taking money from an annuity early, you should consider keeping the money in the policy. Unless you are retiring early, try to obtain money from some other source of savings. This will prevent you from taking money from your retirement savings, and it will eliminate the potential for penalties and fees on your withdrawal.