Many deferred annuities charge a penalty for withdrawing beyond a “free withdrawal” allowance during the surrender charge period.
How it works
The withdrawal amount above the free withdrawal allowance is subject to the surrender charge — multiplying that amount by the surrender charge percentage gives the charge owed.
What this does not include
This computes the annuity’s own surrender charge only — a separate 10% IRS early-withdrawal tax may also apply to a taxable withdrawal before age 59½, covered by this site’s retirement-early-withdrawal-penalty calculator.
How to use this calculator
- Enter the withdrawal amount, free withdrawal allowance, and surrender charge percentage.
Frequently asked questions
What is a “free withdrawal allowance”?
A portion of the contract value (commonly around 10% per year) that can be withdrawn without triggering a surrender charge, even during the surrender period.
Does the surrender charge percentage stay the same every year?
No — surrender charges typically decline each year of the surrender period (e.g., 7% in year one, declining to 0% by year seven or eight), until eventually disappearing entirely.
Can both a surrender charge and the 10% IRS penalty apply to the same withdrawal?
Yes — they’re separate costs from separate sources (the insurance company’s contract terms vs. federal tax law) and can both apply to the same early withdrawal.
