How to get out of AXA 403b?

Annuities are a good investment vehicle for long-term retirement planning. However, they carry higher operating costs that, over time, can eat into your investment returns. If you jumped into an AXA 403(b) annuity without proper research, you may want to opt out at some point. Here is how to get out of an AXA annuity the right way.

Review your AXA 403(b) annuity policy to determine if you are eligible for any distribution exemptions. Check the policy for a free-look provision to know if you are within the allowed period to cancel the contract and get a full refund without penalties. Also, you can use a 1035 exchange to transfer the annuity to another annuity tax-free. If you want to get out of annuities entirely, you can liquidate the annuity and deposit the funds in a savings account or use the money for personal use.

How to get out of AXA 403(b)

Before you close your AXA annuity, you should determine if the annuity is still subject to surrender charges. Annuities have a surrender period of 4 to 10 years or more. If you decide to close the annuity before the surrender period ends, you will pay a surrender charge of 7 to 15%, and it decreases as you approach the surrender period expiry.

Here are the steps you should follow to terminate your AXA 403(b) annuity:

Review annuity policy

The first step is to review the AXA annuity policy to determine the contract inception date and the date you received the contract to help you figure out your surrender options.

Check if you are eligible for any disbursement exemptions that allow you to cancel the annuity without penalties. When you surrender the annuity, it means you are giving the contract back to the insurance company and you will receive the total value of the annuity less any surrender charges.

Check the AXA annuity policy to know the surrender period. This is the duration of time you have agreed to keep your money at the insurance company. If you transfer or cash out the money before the surrender period has lapsed, you will pay a surrender charge.

Decide what to do with the money

Before you surrender the policy, you must figure out how you want to invest the money once you close the AXA annuity. You can decide to cash out, transfer the funds to another 403(b), roll over the money to another retirement plan, or liquidate the annuity.

Locate the free-look period

The free-look period is the time frame during which you can cancel the AXA annuity contract and get a full refund of the premiums you paid without paying surrender charges. Annuities have a free-look period of 10 to 30 days, and it starts from the date you receive the annuity contract from the insurance company.

You can exercise the free-look provision by filling out the surrender form and sending the entire contract to AXA within the allowed period. You don't have to contact the agent that sold the annuity to you; contact the insurance company directly and request a cancellation. You won't be required to provide reasons for canceling the contract as long as it is within the free-look period.

Use a 1035 exchange

If you have changed employers, you can use a 1035 exchange to swap the AXA annuity for another of its kind. A 1035 exchange is a provision in the IRS code that allows investors to transfer an annuity contract to another insurance company with no tax consequences. It applies if the transfer involves the same holder and the same type of annuity contact.

You can only use a 1035 exchange to roll an annuity into another annuity. If you cash out the annuity or use the proceeds to purchase a different type of annuity, it will not be a valid exchange and it will trigger taxes on the distribution and a potential penalty if you are below 59 ½. Also, you will incur a surrender charge, which can be as high as 15%.  

Review your vendor list to find a similar annuity that you want to invest in. Fill out a 1035 Exchange form and the new annuity application form to initiate the transfer. If done correctly, you won’t owe taxes on the distribution. However, you will pay surrender charges on the transfer if it is within the surrender period.

Liquidate the annuity

If you want to take your money out of annuities, you can choose to liquidate the AXA annuity. Although you won't pay tax on your contributions, you will be taxed on the value growth. You will owe an additional 10% penalty if you are younger than 59 ½.  

To initiate the liquidation process, contact AXA to get the surrender forms and fill out the required information. You may also be required to have the signature witnessed to prevent fraud. Submit the complete surrender forms via registered mail, courier, or in person. Once the surrender form is processed, you will receive your check within weeks.