How to Surrender a Tax Sheltered Annuity

A tax-sheltered annuity (TSA) is an employer-sponsored retirement savings plan also called a 403b plan. While these plans are designed to supplement retirement income after age 59 1/2, it is possible to access 100 percent of the money in the account less fees and taxes at any time. Since the money put in is pretax money, the Internal Revenue Service will take taxes out when it is distributed. The tax penalty for surrendering the money before age 59 1/2 was 10 percent as of 2010.

Call the TSA administrator at the number located on the plan statement. Ask if there are any surrender charges or penalties for liquidating the annuity. Some TSAs use deferred annuities as the investment basis, requiring owners to hold the annuity for a minimum number of years, called a surrender period. Taking money out before the expiration of the surrender period requires a fee, called a surrender charge paid on distributions.

Request a surrender form from the TSA administrator.

Complete the form, making sure your name, address and Social Security number is correct. Write in 100 percent liquidation or surrender on the "distribution amount" line. Complete the tax withholding section to determine tax withholding.

Submit the form and wait for a check to arrive. It takes a week to 10 days to receive the surrender value check.

Tips

  • If the TSA owner is at least 55 years of age and worked for the organization at least until age 50, the TSA may be liquidated without the 10 percent tax penalty. The money is still added to income taxes. This is an IRS regulation unique to TSA plans.

    IRS Form 1099-R is sent in January the year after the distribution. The amount in Box 2a is the taxable amount recorded on IRS Form 1040, Line 15.

References

About the Author

With more than 15 years of professional writing experience, Kimberlee finds it fun to take technical mumbo-jumbo and make it fun! Her first career was in financial services and insurance.