What Is Free Withdrawal? Definition

Why it matters

Free withdrawal provisions give some access to money during the surrender period. A common amount is up to 10 percent of the value per year, but this varies by carrier and contract. Income taxes can still apply to the earnings withdrawn, and a 10 percent federal penalty may apply before age 59 and a half. A market value adjustment may apply to amounts above the free limit. Read the contract to see how and when the free amount resets.

Source: investor.gov

Where we use this term

Fixed vs fixed index annuity: how do they work and who do they fit?

Related terms

Surrender Charge: A surrender charge is a fee an insurer charges if you withdraw more than the allowed amount from an annuity, or cancel the contract, during the surrender period. It is usually a percentage that declines each year.
Surrender Period: A surrender period is the length of time, often several years, during which withdrawals above the allowed amount from an annuity trigger a surrender charge. After it ends, the owner can withdraw funds without that fee.
Annuity: An annuity is a contract with an insurance company in which you pay a lump sum or a series of payments. In return, the insurer agrees to make payments to you, either right away or at a future date.
Market Value Adjustment (MVA): A market value adjustment (MVA) is a change to the value of an annuity withdrawal, based on interest rate changes since purchase. It can raise or lower the amount received when money leaves the contract early.
Deferred Annuity: A deferred annuity is an annuity contract that delays payments until a future date chosen by the owner. Until then, the money can grow during an accumulation phase, tax deferred.

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Why it matters

Where we use this term

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