The choice to annuitize your savings is common for people looking to secure an income stream in retirement, but understanding your options can be confusing. Among the key concepts to understand is the annuity maturity date — the point in time when the contract expires and it requires you to make a decision and what to do with the funds.

Before buying an income annuity, it is important to know what this transition entails. Once you sign the contract, you may face restrictions and potential fees and penalties. So you’ll want to account for maturity dates and plan accordingly. 

In this article, we’ll cover annuity maturity, including what to expect when your contract ends. And for further guidance to help you make an informed decision, Gainbridge has a dedicated support team ready to help you find the right annuity maturity option. 

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What is an annuity maturity date?

An annuity maturity date is the contractual date when the accumulation phase for an annuity stops, and the plan moves to its next-step options. 

Most deferred annuities — including fixed, fixed-indexed, and variable annuities — have a clearly defined maturity date that the contract outlines. That stands in contrast to immediate annuities, which usually begin the payment phase shortly after the contract is purchased, offering immediate income. 

For Gainbridge annuity holders, it’s important to carefully review your contract to get a clear understanding of your maturity date. If you have trouble locating this information or have additional questions, a Gainbridge customer service team member can help. 

What happens when your annuity reaches maturity?

Once your annuity reaches maturity, it’s time to start preparing for the next phase. There’s usually a 30-day grace period after (or sometimes before) reaching your maturity date, which gives you time to choose your next steps. 

Here’s what happens when an annuity matures. 

Automatic renewal at a new rate

In many cases, once an annuity does mature, it will automatically renew at a new interest rate when the grace period ends. This is often the default option if you take no action. Current market conditions determine interest rates and could be higher or lower than your original rate. This will also likely result in a new surrender charge period. 

Default payout option per the contract

If your annuity maturity date arrives when you’re in retirement or have reached the age of 59½ — when payouts don’t result in penalties — your contract may switch into the pre-defined payments phase. Options include lump sum payments, annuitization (regular payments for a pre-determined length of time), or rolling your funds over to a new annuity. 

It is important to review your contract to determine what the default option is whether it be a payout phase or automatic contract renewal.

What happens at the end of an annuity contract?

There are several options to choose from at the end of an annuity contract, depending on the original terms. Here are the four main paths forward once a contract ends. 

Lump sum withdrawal

Lump sum withdrawals allow you to collect the entirety of the principal and accumulated value for your annuity contract in one payment. Many people choose this option when they need access to a large amount of capital in a short period of time for expenses like paying off debt or making a major purchase. 

But be warned: This path can trigger significant tax liabilities as it will result in a spike in income for the tax year in question. While your principal investment is tax-free for non-qualified annuities, all gains and interest are fair game to the IRS. For qualified annuity withdrawals, the entire amount is taxable. 

If you’re under 59½, you could also face a 10% IRS early withdrawal penalty, so it’s important to understand how different options will affect you. A Gainbridge customer service team member can help you assess the implications and explore strategies to minimize your tax burden. It also may be worthwhile to explore tax implications with your tax advisor as Gainbridge does not offer tax advice.  

Annuitization

Annuitization is the process of converting your annuity’s accumulated value into a steady income stream in retirement. Options may include payments for life, a fixed period, or a combination of both. 

On the tax front, the amount you owe to the government depends on whether you funded the annuity using pre-tax or after-tax dollars. The IRS taxes your entire payment, treating it all as ordinary income for qualified annuities using pre-tax dollars. Non-qualified annuities use after-tax dollars, so you only pay taxes on the growth. That means the portion of each payment that represents your original investment is tax-free, while the portion that represents your earnings is taxable. 

Rollover

A rollover is a popular choice for people still working or retirees who want to let their investment continue to grow tax-deferred. It involves rolling over your annuity funds into a new annuity. 

Rollovers allow you to continue enjoying the advantages of annuities. They may also offer better terms or features like higher interest rates or guaranteed lifetime income benefits. Gainbridge offers a range of annuity products to fit your needs, along with resources that can help you explore if a rollover is right for you. Rollovers would be similar to letting your annuity renew, but instead you are moving your funds to a new product that may be better suited for your needs.

Systematic withdrawals

Systematic withdrawals are the middle ground between lump sum and life-time income through annuitized payments. This option lets you take regular payments while also keeping your remaining funds invested and growing. You decide on the withdrawal amounts and frequency of payments. It is important to be aware of any fees, surrender charges, and taxes associated with withdrawals.

Gainbridge can help you explore this option and structure withdrawals to help optimize your income while minimizing taxes. 

Options for income or rollover after maturity

When your annuity reaches maturity, you have several options on how to structure your post-maturity income or rollover. These can also vary based on your contract.

• Life-only payout: Offers guaranteed income for your lifetime, but all payments cease upon your death, even if there are funds left in your annuity, with no benefits for beneficiaries. 
• Life with period certain: This option guarantees payments for your lifetime or for a specified period of time, such as 10 or 20 years. Beneficiaries receive the remaining payments if you pass before the contracted term ends. 
• Joint survivor: Payments continue for as long as you or a co-annuitant — such as a spouse — are alive. 
• Fixed period payout: Provides guaranteed payments for a set period of time. If you pass away during that time, your beneficiary receives any remaining payments.

There are pros and cons to each payout option, so it’s important to thoroughly research the different structures to determine which suits you best. And if your need for immediate income is not pressing, there’s always the option of rolling over into another Gainbridge annuity for continued tax-deferred growth. 

Explore your annuity options with Gainbridge

Gainbridge offers an array of different annuities with no middleman and zero hidden or administrative fees, along with a dedicated support staff to help guide you on your journey. Explore Gainbridge today, and learn more about how an annuity can provide you with guaranteed income in retirement. 

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This article is for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The Gainbridge® digital platform provides informational and educational resources intended only for self-directed purposes. Guarantees are backed by the financial strength and claims-paying ability of the issuer.

Withdrawals of taxable amounts are subject to ordinary income tax and if made before age 59½, may be subject to a 10% federal income tax penalty. Distributions of taxable amounts from a nonqualified annuity may also be subject to an additional 3.8% federal tax on net investment income.