When making an early withdrawal from an annuity, income tax must be paid on the earnings and a 10 percent penalty is payable to the government. As of 2015, if funds are withdrawn from an annuity before the age of 59.5 years, it is considered an early withdrawal.
When withdrawing from an annuity within the first five to seven years, a surrender fee may be payable to the insurance company. Companies typically charge 7 percent of the total withdrawal, but other companies can charge up to 20 percent of the withdrawal. Reviewing the company's policy on fees is recommended when considering a withdrawal.