An annuity maturity date is the deadline written into your deferred annuity contract at which the accumulation phase must end and you have to tell the insurance company what to do with the money. Most contracts set that date at the age when the owner or annuitant turns 85, 90, or 95. When it arrives, you generally choose among three things: take the cash in a lump sum, convert the balance into a stream of income payments, or move it into a new annuity through a tax-free exchange. If you do nothing, the contract picks for you.
What the Maturity Date Is
The date is printed in your contract, tied to a specific calendar day when the owner reaches a set maximum age. Insurers push it decades into the future so the account can compound without tax drag for as long as possible. It’s locked in at purchase and doesn’t move unless you exchange into a new contract, in which case the new contract carries its own fresh date.
You don’t have to wait for that day to touch the money. Most deferred annuities allow withdrawals, systematic payments, or full annuitization long before maturity. Treat the date as a ceiling, not a target: it’s the last moment the contract can sit in accumulation, not the first moment you can act.
What Happens If You Do Nothing
This is where the maturity date bites. If the date passes without instructions from you, the contract’s default provision takes over. For many fixed and indexed annuities, the default is automatic renewal at a new interest rate set by current market conditions, and that renewal often starts a fresh surrender charge period. You’re locked back in for years at a rate you never agreed to.
Other contracts default to forced annuitization, converting the whole balance into income payments under a payout structure the insurer chooses. Either outcome can be financially damaging if it catches you off guard. Pull your contract well ahead of the maturity date and read the default provision, then make an active choice.
Your Three Options at Maturity
Take a Lump Sum
You can cash out the entire contract and receive the full accumulated value in one payment. The annuity terminates, you get complete control of the money, and the tax bill lands in the same calendar year. For a contract with substantial gains, a single-year lump sum can push you into a much higher bracket than you’d normally see. It makes sense when you need the money now or plan to move it out of the annuity structure entirely, but the tax consequences deserve real attention before you sign.
Annuitize the Balance
Annuitization converts the accumulated value into a guaranteed stream of income payments. You give up the lump sum in exchange for periodic checks over a period you select. The size of each payment depends on your account value, your age, and the interest rate assumptions the insurer builds into the payout.
The main payout structures are:
- Life only, which pays the highest monthly amount but stops when you die, leaving nothing for heirs.
- Period certain, which guarantees payments for a fixed term (commonly 10 or 20 years); if you die during the term, the beneficiary receives the remaining payments.
- Joint and survivor, which continues payments to a second person, usually a spouse, at a lower monthly amount because the insurer expects to pay longer.
Inflation is the risk retirees miss. A fixed payment that feels comfortable at 70 can feel thin at 85. Some insurers offer a cost-of-living rider that raises payments each year by a set percentage or by tracking the Consumer Price Index. The starting payment is noticeably lower in exchange, because the insurer prices those future raises in from day one.
1035 Exchange Into a New Contract
If you want to keep the tax deferral going, you can transfer the balance directly into a new annuity through a Section 1035 exchange. The transfer moves funds from one insurer to another with no tax due, and the new contract issues its own maturity date.
The statute is specific about what qualifies. An annuity can be exchanged for another annuity or for a qualified long-term care insurance policy.1Office of the Law Revision Counsel. 26 USC 1035 – Certain Exchanges of Insurance Policies You cannot exchange an annuity for a life insurance policy. The flow runs one way only: life insurance can become an annuity, but an annuity cannot become life insurance.
The exchange has to be a direct transfer between insurers. If a check comes to you and you then use it to buy a new annuity, the IRS treats the transaction as a taxable distribution followed by a new purchase, not a tax-free exchange.2Internal Revenue Service. Revenue Ruling 2007-24
You don’t have to move the entire balance either. Under Revenue Procedure 2011-38, you can transfer part of one annuity’s cash value into a second annuity tax-free, provided you don’t take any distribution from either contract (other than annuity payments over 10 years or a lifetime) within 180 days of the transfer.3Internal Revenue Service. RP-2011-38 – Partial Exchange of Annuity Contracts That lets you split the money across two contracts with different features while keeping the deferral on both pieces.
Taxes at Maturity: Non-Qualified Annuities
If you bought the annuity with after-tax dollars outside a retirement account, it’s non-qualified, and it follows its own set of rules. Your original premium comes back tax-free because you already paid tax on it. The earnings are taxed as ordinary income when you receive them. How that plays out depends on which option you pick.
Lump Sum and the LIFO Rule
Before annuitization begins, the IRS applies a last-in-first-out rule to distributions. Every dollar coming out counts as taxable earnings until all the gain has been distributed; only then does your original premium start coming back tax-free.4Internal Revenue Service. Publication 575 – Pension and Annuity Income On a full cash-out, the entire gain lands in one tax year. If a contract grew from $200,000 to $350,000, all $150,000 of earnings is ordinary income in the year you take the money.
Federal brackets for 2026 range from 10% on the first $12,400 of taxable income for single filers up to 37% on income above $640,600.5Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 A large lump sum can shove your total income into a bracket you’d never touch in a normal year. If your contract allows partial withdrawals leading up to the maturity deadline, spreading the money across two or three tax years can soften the impact. The insurer reports the distribution on Form 1099-R with the taxable and non-taxable portions broken out.6Internal Revenue Service. About Form 1099-R
Annuitized Payments and the Exclusion Ratio
Once you annuitize, each payment splits into a taxable portion and a tax-free return of your original investment. The split comes from the exclusion ratio: your investment in the contract divided by the expected return over the payout period.7Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts Expected return uses IRS life expectancy tables in Publication 939.8Internal Revenue Service. Publication 939 – General Rule for Pensions and Annuities
If you invested $100,000 and your expected return is $250,000, the exclusion ratio is 40%. Forty percent of each payment is a tax-free return of principal; the other 60% is taxable earnings. The tax bill spreads across many years instead of stacking into one. After you’ve recovered your entire original investment, every remaining payment becomes fully taxable.
The 3.8% Surtax
Higher earners face one more layer. Taxable distributions from non-qualified annuities count as net investment income subject to the 3.8% surtax once modified adjusted gross income clears $200,000 for single filers or $250,000 for married joint filers.9Internal Revenue Service. Net Investment Income Tax Stacked on the top 37% bracket, that pushes the marginal federal rate to 40.8% on the affected income.
1035 Exchanges Stay Tax-Free
A properly executed 1035 exchange produces no taxable event. Your cost basis and accumulated earnings carry over to the new contract; no gain is recognized on the transfer.1Office of the Law Revision Counsel. 26 USC 1035 – Certain Exchanges of Insurance Policies The tax is postponed, not erased. When you eventually pull money from the new contract, the same LIFO and exclusion ratio rules apply.
Qualified Annuities: RMDs Override the Maturity Date
If your annuity lives inside an IRA, 401(k), or another tax-advantaged retirement account, it’s qualified, and the picture shifts. For a qualified annuity funded entirely with pre-tax contributions, there’s no cost basis to recover, so the entire distribution is taxable as ordinary income.4Internal Revenue Service. Publication 575 – Pension and Annuity Income If any after-tax contributions went in, a proportional share comes back tax-free.
The bigger issue for qualified annuities is that required minimum distributions apply regardless of the contract’s maturity date. Under SECURE 2.0, RMDs must begin the year you turn 73 if you were born between 1951 and 1959, or the year you turn 75 if you were born in 1960 or later.10Congressional Research Service. Required Minimum Distribution (RMD) Rules for Original Owners Those deadlines override any later date printed in your contract. A qualified annuity with a maturity date at 95 still owes RMDs starting at 73 or 75. If your annuity is inside a retirement account, the maturity date isn’t the only deadline you need to track.
How the Type of Annuity Affects Your Maturity Value
The date is fixed. The dollar amount waiting on that date isn’t, and how much certainty you have going in depends on the product.
A fixed annuity credits interest at a guaranteed rate, so the maturity value is predictable: original premium plus all credited interest. Planning the maturity decision is straightforward because you already know the number.
A variable annuity’s value tracks the investment subaccounts you selected, so at maturity the balance could be well above or below what you contributed. Market performance in the years just before maturity has an outsized effect, and the timing of your decision matters more than with a fixed product.
An indexed annuity ties returns to a market index but with a floor protecting your principal and a ceiling capping gains through participation rates, caps, and spread fees. Your maturity value reflects the cumulative credited returns under the contract’s formula, which typically trail the raw index return in exchange for the downside protection. Reviewing the crediting method before maturity keeps expectations honest.
If the Owner Dies Before Maturity
The contract doesn’t simply expire on death. The named beneficiary receives the accumulated value, typically as a lump sum if the annuity was still in accumulation. If annuitized payments had already started, the beneficiary may continue receiving them depending on the payout structure chosen.
A surviving spouse can usually assume ownership of the contract, keeping the tax-deferred status alive and naming a new beneficiary. Non-spouse beneficiaries generally must take a distribution within a set period and cannot assume the contract. Post-death distributions are exempt from the 10% early withdrawal penalty regardless of the beneficiary’s age.7Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts If no beneficiary is named, the death benefit goes to the estate and moves through probate.
One Note on Insurer Solvency
Annuities aren’t FDIC-insured. The contract is backed by the insurance company, and if the carrier fails, state guaranty associations provide a backstop, with most states protecting at least $250,000 in annuity value per owner, per insurer. Limits and specifics vary by state, so if you’re deciding at maturity whether to concentrate a large balance with one carrier through a 1035 exchange, checking your state’s guaranty association coverage is worth the few minutes.