Annuity financing represents a unique way to obtain money needed for life’s emergencies. This loan option lets people draw from their retirement funds without the finality of cashing out their retirement. The annuity loan offers several advantages:
Avoid the Early Payment of Taxes on the Money
If you were to cash out your annuity, that money would be considered a taxable distribution. When it is withdrawn as a loan, you avoid paying income taxes at the time of withdrawal. You’ll also avoid an additional 10% early withdrawal penalty.
Avoid Paying Surrender Charges
Another important advantage to using annuity financing when you need a loan is that you can avoid surrender charges. These charges are the penalties you’d have to pay if you cancel the annuity contract. Anytime you’ve entered into an annuity contract, you’ll find that canceling the contract before a certain amount of time will lead to charges that might eliminate any gains. Rather than giving up the gains you may have earned during the time that you maintained the contract, a loan allows you to access the money without those surrender charges.
A Lower Interest Rate Than Other Traditional Loans
The low interest rate associated with this type of loan is another valuable advantage. When your financial situation leads to the need for a large lump sum of money, the interest rates on many loans can be prohibitive. Sadly, many people find that they don’t have any choice but to accept those high rates. The long term consequences of those high rates can have unwanted consequences for many years. Annuity financing offers a course of action that allows you to meet your current financial obligations without putting your financial future at risk.
Are There Any Drawbacks?
There are a few risks involved with this type of financing. If you neglect to make your payments on time, you could face paying the ten percent early penalty. You might also find that withdrawing the money from your investment will limit the amount of earnings you could make. However, with careful management, the advantages could outweigh these disadvantages.
Is the Financing Arrangement Right for You?
Every provider of annuity financing offers a different combination of terms and conditions. You may be able to borrow up to fifty percent of the cash value. To get specific information about the conditions, you’ll need to contact the company in charge of the annuity. You’ll probably fill out paperwork to request the loan and then wait for the loan to be processed. Eventually, you should have the sum you need and an affordable and convenient repayment plan.