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Chapter 16. Tax-Sheltered Annuities > The Good and the Bad - Pg. 163

Tax-Sheltered Annuities 163 Some Other Things You Need to Know There are still some other things you need to know before purchasing an annuity. Unlike your 401(k) plan or IRAs, there is no limit to the amount you can invest in an annuity. This may be important to you if you have maxed out your plans at work. So if you have an extra $100,000 languishing in a savings account, you could invest it in an annuity. You need to begin withdrawals from your 401(k) plans at age 70½ unless you are still working--you can then postpone withdrawals. There is no set date where you are required to start withdrawals from an annuity. You know if you withdraw your money from an annuity you may face a penalty. But what happens if you do buy a dud? Say you've purchased a variable annuity and aren't pleased with its perform- ance. Or say the rate you've been receiving on your fixed annuity has dropped considerably since you purchased it. There is a way to get out. The exit reads 1035 Exchange. You can switch your money to another company, and you can avoid paying the penalty to the IRS. But you will still be liable for any surrender charges that may be due to company number one. Be sure you get some help doing this, for you don't want the money coming to you but going directly to company number two. Company number two will be more than willing to help you with the transfer. By the way, the clock starts ticking on any new surrender charges from the new company as soon as you make the transfer. Here are a couple more things you need to know. There's a way to get some of your dollars back from the insurance company without incurring the surrender charge. Normally there is a provision in the contract (usually in the small print) that will allow you to withdraw 10 percent a year without a surrender charge. So if you have an emergency, you may have access to some of your money without paying the surrender charge. A stepped-up basis does not work with annuities. Oops. You want to know what a stepped-up basis