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Updated August 2, 2026. Quick answer: leaving an annuity costs three separate things, and most people only think about the first: the surrender charge, the income tax on the entire gain (which comes out first, before any of your original money), and a 10% additional tax if you are under 59½. This works out all three from your own contract terms, and shows what the charge costs in each remaining year so you can see exactly what waiting is worth.
IRS worksheets read line by line: Pub 939 Worksheets I and II.
Read box by box from the IRS form text: Form 1098-Q boxes 1a, 1b and 2, Form 1098-Q box 3 and Form 1098-Q box 4.
The calculator
Why we ask you for the schedule instead of assuming one
Because a surrender schedule is a term of your particular contract, not a convention shared across the market. Schedules differ in length, in the rate they start at, in how fast they decline, and — the part that changes the answer most — in what the percentage is applied to. Some contracts charge against the account value, some against the original purchase payments, and some against whichever is less. The free-withdrawal amount varies the same way.
Every page that quotes you a “typical” schedule is guessing at the single number that decides your answer. Yours is printed in your contract, usually in a table headed surrender charge or withdrawal charge, and the annual statement or a call to the issuer will confirm the year you are currently in. That is a five-minute task and it is the only input that matters.
The tax part is where people are surprised
Withdrawals from a non-qualified annuity come out earnings first. Not proportionally, not basis first — the gain comes out in full before any of your original money does. So a contract with a large gain produces a large taxable amount in a single year, at ordinary income rates, not capital gains rates, however long you have held it. The allocation rule, from the statute sets out why.
That single-year bunching is the real cost for many people, because it can push income across thresholds that have nothing to do with the annuity — a higher bracket, the surtax, or a Medicare premium set two years later. If the gain is large, the question worth asking is not only whether to leave but over how many years, which is what the free-withdrawal corridor exists to allow.
Under 59½ there is also a 10% additional tax on the taxable portion, with statutory exceptions — which ones apply and which do not.
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How our partner relationships workWhat this deliberately does not tell you
Whether to leave. That depends on what the contract is doing for you — a guaranteed income rider you would be walking away from, a death benefit worth more than the account value, a rate you could not replace — and none of those are in the arithmetic above. This page prices the exit. It does not price what you would be giving up, and anyone who tells you the answer without seeing your contract is selling something.
That cuts both ways. The people who will tell you to surrender immediately and the people who will tell you never to are usually paid differently, not thinking differently. The numbers on this page are the part that is not a matter of opinion.
The other ways out
Surrendering in full is one of several options and often not the cheapest. There is the free corridor taken over several years, annuitising, a partial withdrawal, a 1035 exchange into a different contract, or simply waiting for the schedule to expire. The option map, with the statutory facts under each covers the choice; this page prices the one option that has a hard number attached.
On exchanges, one trap is worth knowing before anyone suggests one: a 1035 exchange does not reset your tax position, but the new contract does start a brand-new surrender schedule. And what a 1035 does and does not do to the tax.
If you do leave
The proceeds arrive as a lump sum with tax attached, and the surrender has its own withholding election. Whether that withholding covers your safe harbour is a separate question from the surrender itself, and a common second surprise. Then the money needs somewhere to go: where it sits in your withdrawal order.
Figures verified against IRS Rev. Proc. 2025-32 (2026 rate tables) and 26 U.S.C. § 72(e) and (q) on September 30, 2026.
Earnings-first allocation from IRC section 72(e); the 10% additional tax and its exceptions from section 72(q), which governs non-qualified annuities (section 72(t) is the separate rule for qualified plans and IRAs). 2026 rate schedules from the verified Rev. Proc. 2025-32 tables. We publish no representative surrender schedule because none was verified at a primary filing; your contract controls. General information, not tax or investment advice.