Lump Sum Distributions from Deferred Annuities

You have the option to take lump sum payouts from your deferred annuity. In this case, the earnings (interest) in your account are required to be withdrawn first and are subject to income tax, before any amount is treated as a return of your contributions. Income tax would also be paid on any tax-deferred contributions withdrawn. In addition, the earnings are subject to a penalty tax of 10 percent if you withdraw the money before age 59 ½, except in certain circumstances, such as disability or death. Other tax penalties can occur if you fail to take the annual minimum required distribution for a tax-qualified plan.