Your financial needs, priorities and goals are constantly evolving throughout your life. So when you have a long-term investment, such as an annuity, its a good idea to revisit it periodically to make sure its still meeting your expectations. Many financial products are designed to change, roll over, mature and otherwise evolve with you, and you may find yourself wondering how to transfer an annuity.
Find out about the rules for transferring annuities and what you should think about before you do it.
Life is unpredictable. You might purchase an annuity with certain goals in mind, only to find your financial situation has changed years later. Maybe you’ve discovered a better annuity with more competitive rates, or perhaps your retirement needs have shifted. This leaves many annuity owners wondering: can you actually change the terms of an annuity after you’ve signed the contract?
The short answer is yes – but with limitations. Let’s look at what you can change about your annuity, what stays the same, and how to make changes without having to pay extra taxes or fees.
What Can You Change in Your Annuity Contract?
While annuities are designed as long-term financial products, they do offer some flexibility. Here are the elements you can typically modify:
1. Beneficiary Designation
You can almost always change who will receive your annuity’s death benefit. This is one of the easiest modifications to make and usually requires just a simple form from your insurance company.
2. Payment Method
Want to change how frequently you receive annuity payments? In many cases, you can adjust this – switching from monthly to quarterly distributions, for example.
3. Investment Options
If you have a variable annuity, you may be able to change how your annuity is invested. As one provider notes, “You can either exchange from one investment option to one or more investment options held or not held in your annuity contract, or change (reallocate) the current percentage allocated among investment options.”
4. Access to Cash Value
Many annuities particularly deferred annuities include features that allow you to access a portion of your cash value during the accumulation phase. Some contracts offer riders that provide additional liquidity options.
What Can’t You Change About Your Annuity?
Unfortunately, not everything in your annuity contract is flexible. Here are some aspects that typically remain fixed:
1. Payment Amount
The amount of your annuity payments is usually set when you purchase the annuity and can’t be easily modified afterward.
2. Payment Duration
Similarly, the length of your annuity payments (whether for a fixed period or lifetime) is typically locked in at purchase.
3. Annuity Type
It is not usually possible to switch from one type of annuity to another within the same contract. For example, you cannot change a fixed annuity to a variable annuity.
4. Irreversible Annuitization
As noted in one FAQ, “When you buy one, the decision is irreversible, you can’t change your mind later.” Once you’ve annuitized (started taking income payments), you typically can’t reverse that decision.
How to Change Your Annuity Terms
If you want to modify certain aspects of your annuity, here are your main options:
Contact Your Insurance Company
For simple changes like updating beneficiaries or payment methods, reach out to your insurance provider directly. They’ll guide you through the necessary paperwork.
Consider Riders
“Riders,” which are extra features that you can add to many annuities, can make your contract more flexible. These might include:
- Income riders
- Death benefit riders
- Long-term care riders
- Withdrawal riders
While these typically come with additional fees, they can provide valuable options if your circumstances change.
1035 Exchange: Switching to a Different Annuity
If your current annuity doesn’t meet your needs, you might consider a 1035 exchange. This IRS provision allows you to transfer funds from one annuity to another without immediate tax consequences.
Key requirements for a tax-free 1035 exchange:
- The contracts must be similar types
- The account owner must remain the same
- The entire process must be completed within 30 days
- You must follow proper documentation procedures
Important: “The company that is selling you the annuity should give you a Form 1099-R that you can use to report the exchange on your taxes.” “.
Costs and Considerations Before Making Changes
Before changing your annuity terms, be aware of these potential costs and implications:
1. Surrender Charges
Most annuities impose surrender charges for withdrawing funds or canceling the contract, especially within the first several years. These fees can be substantial – sometimes 7% or more of your contract value.
2. Tax Implications
If you cash out your annuity before age 59½, you’ll typically face a 10% early withdrawal penalty on earnings, plus ordinary income taxes. Even with a 1035 exchange, improper execution could trigger unexpected tax consequences.
3. Loss of Benefits
Modifying your annuity might mean losing valuable benefits or guarantees from your original contract. For example, older annuities sometimes offer higher guaranteed rates than newer products.
4. Partial Transfers
In some cases, you can transfer just a portion of your annuity through a partial 1035 exchange. However, “To avoid having the transfer treated as a taxable distribution, no withdrawals should be made from either contract within 180 days of the exchange.”
Special Situations
Divorce Transfers
If you’re transferring an annuity due to divorce, different rules may apply. “If you’re transferring an annuity to your spouse because you’re divorcing and the transfer occurs within one year after the marriage ends, it would be tax-exempt.”
Replacement Notice
When replacing one annuity with another, “The agent is required to provide you with a replacement notice outlining the benefits and drawbacks if you choose to replace your annuity.” This disclosure helps you understand what you’re gaining and losing with the change.
When Changing Annuity Terms Makes Sense
You might consider modifying your annuity if:
- You’ve found a product with more competitive rates
- You want to reduce fees
- You have concerns about your current provider’s financial stability
- You’re seeking better customer service
- Your financial goals have significantly changed
As one provider puts it, “Annuities offer options that allow you to customize them to your long-term goals and maximize their value. However, life is full of curve balls.”
When to Stick With Your Current Annuity
Sometimes, it’s better to keep your existing annuity, particularly if:
- You’d face steep surrender charges for making changes
- Your current contract offers valuable guarantees unavailable in newer products
- You’re already receiving income payments (annuitization)
- The tax implications of changes would be too costly
Getting Professional Help
Navigating annuity changes can be complex. Before making decisions:
- Speak with your insurance company to understand your specific contract terms
- Consult a financial advisor who understands annuities and tax implications
- Consider tax consequences with an accountant or tax professional
As one source recommends, “Find out more about your options and whether an annuity is the right choice for you by having a conversation with a financial or insurance expert.”
Bottom Line
While annuities aren’t completely flexible, they do offer more options for modification than many people realize. The key is understanding exactly what you can change, what remains fixed, and what potential costs might be involved.
Remember that annuities are designed as long-term financial tools. While it’s possible to make certain changes, the best approach is to carefully select the right annuity from the beginning, anticipating your future needs as best as possible.
I always tell my clients that before making any changes to an annuity contract, they should weigh the potential benefits against any surrender charges, tax implications, and lost guarantees. Sometimes what looks like a better deal may not be when all factors are considered.
Whether you’re looking to update a beneficiary, change investment allocations, or potentially transfer to an entirely new contract, knowing your options helps you maintain control of your financial future even as your circumstances evolve.
Have you ever changed the terms of your annuity? What was your experience like? We’d love to hear your stories in the comments below!
Reasons you may want to transfer an annuity
Transferring an annuity may make sense in various situations, depending on your evolving financial goals, circumstances and the annuity contracts terms. Some reasons to transfer an annuity include better investment options, higher interest rates, lower fees or other features.
- Better investment options. If you have a qualified annuity with few investment options or are unhappy with how the investments are doing in your annuity, you may want to move your money to an annuity or retirement account with more diverse and appealing investment options.
- Better interest rates. If the rate of return on your fixed or fixed-indexed annuity is higher than the current interest rate, you might want to switch to an annuity that has a better interest rate potential.
- Lower fees and expenses. Moving to an annuity with lower fees can help you keep more of your money if the fees on your current one are too high or there are other costs that are cutting into your returns.
- Improved features. Some annuity contracts have extra benefits that can be gained by transferring the contract. For instance, you could find an annuity with better benefits for living or dying.
- Consolidation. It can be easier to manage your investments if you combine multiple retirement accounts or annuities into one. This is especially true if you want to make your finances easier.
- Legacy and estate planning purposes. Transferring an annuity can be a smart way to plan for your legacy. To get the best estate tax results, you might want to give the annuity to a trust, a beneficiary, or your spouse.
- You need an income stream sooner. You could move the money from a deferred annuity to an immediate annuity to start getting regular payments if your financial goals change from building wealth to making money.
Can all types of annuities be transferred?
No. Whether or not your annuity can be exchanged or moved depends on whether its paying out or not and how it was funded.
Qualified and nonqualified annuities are transferrable.
Annuities held within an IRA or employer retirement plan are referred to as qualified annuities. These annuities are purchased with pretax dollars and are often used for retirement savings. You generally can transfer a qualified annuity to another qualified retirement account or annuity.
Annuities held outside an IRA or employer retirement plan are referred to as nonqualified. They are transferrable as long as they havent been annuitized and theyre not paying out income yet. They can be transferred to another nonqualified annuity through a 1035 exchange regardless of whether theyre fixed, variable or indexed.
These annuities already are paying out income. They generally cant be transferred to another annuity.
Annuity Examples | Transfer Annuities The Right Way
FAQ
Can you make changes to an annuity?
Annuity features and other options—often known as riders—allow you to change the terms of the annuity, access (liquidate) a portion of the cash value, or ….
What is the biggest disadvantage of an annuity?
The most significant disadvantages of annuities are their lack of liquidity, due to high surrender charges and penalties for early withdrawals, and high fees and complexity, which can significantly reduce returns over the long term.
How to break an annuity contract?
If you want to get out of an annuity, you can surrender it and pay surrender charges, make penalty-free partial withdrawals up to the limits of your contract, do a 1035 exchange to a new annuity that is not taxed, use a hardship provision if one is available, or sell your future income stream to a third-party company.
How much does a $100,000 fixed annuity pay per month?
The monthly payout you’ll get from a $100,000 guaranteed annuity generally ranges from approximately $525 to just over $1,000 per month, according to an …Apr 24, 2025.
Can I transfer an annuity to another company?
Yes, you can use a 1035 exchange to move an annuity to a different company. This lets you move money from one annuity to another without paying taxes on it. Always review potential surrender charges and the new contract terms before proceeding. Can you transfer an annuity to another person?.
What is an annuity transfer?
An annuity transfer generally refers to moving the value of an existing annuity contract to another annuity or insurance company without immediately triggering taxes or penalties. Examples of annuity transfers include: Transferring an annuity is different from naming a beneficiary.
What happens if you transfer an annuity?
So, you might name your spouse or an adult child as a beneficiary to your annuity. People usually make some kind of big change when they transfer an annuity. This could be where the contract is held, what its terms are, or who is listed as the owner.
Can I transfer ownership of an annuity?
In conclusion, transferring ownership of an annuity can be a complicated process that requires careful consideration and planning. Before attempting to transfer ownership, it is essential to review the contract terms and consult with your financial advisor or tax professional to understand the potential tax implications of the transfer.
Can you change ownership of an annuity?
Changing ownership isn’t simple. How it works: Transferring ownership to another person usually triggers taxes. Inherited annuities follow special rules, requiring withdrawals within 10 years or over life expectancy (depending on the beneficiary). Pros: Allows division of assets in estate planning or divorce.
How do I transfer an annuity to a new contract?
In order to complete a 1035 exchange to transfer an annuity into a new contract, you would need to: You’ll need to report a 1035 exchange of annuity contracts on your federal tax return. The annuity company that’s transferring the contract should issue you a Form 1099-R that you can use to report the exchange on your taxes.