Differences Between Annuities and Structured Settlements

If you bought an annuity with your own money, you may eventually decide you want to take the money out early. Doing so usually incurs fees and penalties. You will also face a 10% tax penalty on withdrawals from the retirement annuity before the age of 59 ½.

Selling structured settlement payments is a different story. Given that structured settlements are designed to provide financial support for the future of wrongdoers, strict state and federal laws govern the sale of payments to third parties known as factoring companies. These companies offer immediate cash in exchange for future settlement payments.

To sell a structured settlement, you must appear before a judge and make a valid case as to why you need immediate access to your settlement money. You may need a lawyer present at the hearing.

Selling traditional annuities, by contrast, is not a legal process. Selling is more straightforward and faster because an annuity is essentially a contract between you and the insurance company.

Taxes are also different when selling structured settlement payments compared to annuities. Sales of personal injury settlements are tax-exempt. However, you will owe income tax when you sell other types of annuities.

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