Can I sell my pension annuity? If your income comes from an employer-sponsored pension plan, almost certainly not. If it comes from an individual annuity you purchased from an insurance company or a structured settlement from a legal claim, usually yes, though you’ll typically walk away with only 60 to 80 percent of what the remaining payments are worth on paper.
What You Can and Can’t Sell
The source of your payments decides everything.
Employer Pensions Are Off Limits
Benefits from a 401(k), a traditional defined-benefit pension, or any other workplace retirement plan cannot be sold. The Employee Retirement Income Security Act requires every pension plan to prohibit the assignment or transfer of benefits to a third party.1Office of the Law Revision Counsel. 29 U.S.C. 1056 – Form and Payment of Benefits No factoring company can legally buy your employer pension on the secondary market.
One narrow exception exists, and it isn’t a sale. A Qualified Domestic Relations Order lets a court assign part of your pension to a spouse, former spouse, or dependent as part of divorce or child support proceedings.2U.S. Department of Labor. Qualified Domestic Relations Orders – Chapter 1 It’s a court-ordered reassignment to a family member, not a way to convert your pension to cash.
Individual Annuities and Structured Settlements
An annuity you bought directly from an insurer with your own money (a non-qualified annuity) sits outside those federal restrictions. You generally have the right to surrender the contract back to the insurance company, take partial withdrawals, or sell future payment rights on the secondary market, unless your contract itself prohibits transfers.
Structured settlement annuities, the payments you receive after a personal injury or other legal settlement, can also be sold. But every state requires a judge to approve the sale before it takes effect, and the process is more involved than surrendering a regular annuity contract.
How Much You’ll Actually Receive
A factoring company will not pay face value. It applies a discount rate, typically 9 to 18 percent annually, to compute the present value of your future payments and take its profit. The higher the discount rate, the smaller your check. After fees and discounts, most sellers end up with roughly 60 to 80 percent of what they would have collected by keeping the payments.
Say you have $100,000 in structured settlement payments remaining over 15 years. A factoring company might offer somewhere between $60,000 and $80,000 today. The exact amount depends on the discount rate, how long the payment schedule runs, and the specific terms of your contract. Get quotes from more than one company and compare the discount rates and fee deductions, not just the headline lump sum.
Court Approval for Structured Settlements
Every state and the District of Columbia has a Structured Settlement Protection Act requiring a judge to sign off before a transfer takes effect. Federal tax law backs this up: a factoring company that acquires structured settlement payment rights without court approval owes a 40 percent excise tax on the deal.3Office of the Law Revision Counsel. 26 U.S.C. 5891 – Structured Settlement Factoring Transactions Buyers have a strong incentive to follow the process.
Judges apply a “best interest” standard. They weigh whether the sale genuinely serves your long-term financial well-being, not just whether you want cash now. Concrete reasons carry weight: preventing foreclosure, covering medical costs, paying for education that can’t be postponed. Courts have called excessively high discount rates “unconscionable” or “exorbitant,” and some states cap allowable rates by statute. A judge can reject a deal that would leave you financially unstable or that carries an effective interest rate well above market norms.
Many states require the factoring company to tell you in writing to get independent professional advice from a lawyer or financial planner before the sale can proceed. Some go further and require your advisor to sign a statement confirming they explained the consequences to you. Even where the advice is optional, pay for it. The decision is irreversible.
Before the hearing you’ll receive a disclosure statement comparing the total face value of the payments you’re selling against the net amount you’ll actually receive after the discount and fees. The company must also file the transfer agreement with the court and give notice to interested parties, including the insurance company that issues your payments.
Taxes and Penalties on the Payout
Taxes can carve a meaningful slice out of your proceeds, and the treatment depends on the type of annuity.
For a non-qualified individual annuity purchased with after-tax money, the portion of your payout representing earnings (anything above your original investment in the contract) is taxed as ordinary income. Taking it as a lump sum instead of spread across years can push you into a higher bracket for that year. The insurance company reports the distribution on IRS Form 1099-R.4IRS. 2025 Instructions for Forms 1099-R and 5498
Structured settlement payments from personal physical injury claims are generally tax-free when received on their original schedule. Selling those payments for a lump sum can change that treatment, and the tax consequences are complex enough that you should talk to a tax professional before signing anything.
If you’re younger than 59½ and cash out a non-qualified annuity, the IRS adds a 10 percent tax on the taxable portion of the distribution, on top of ordinary income tax. Limited exceptions apply: disability, a series of substantially equal periodic payments over your lifetime, or an immediate annuity.5Office of the Law Revision Counsel. 26 U.S.C. 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts Needing the cash is not an exception.
Alternatives Worth Checking First
Selling permanently cuts your future income. Before signing a transfer agreement, look at what your contract already lets you do.
- Some annuity contracts include a commutation rider that lets you withdraw a portion of the remaining payments’ present value in exchange for reduced future payments. Partial liquidity, no third-party buyer.
- Many accumulation-phase annuities allow you to withdraw up to 10 percent of the account value per year without surrender charges. If the amount you need is modest, periodic withdrawals may cover it.
- You can surrender a non-qualified annuity to the insurance company for its cash value. Watch for surrender charges during the contract’s initial period, often starting around 6 percent in the first year and declining to zero over roughly six to seven years.
- You don’t have to sell everything. Factoring companies will buy a set number of payments or a specific dollar amount and leave the rest of your payment stream in place.
- Some deferred annuity contracts allow policy loans against the contract’s value. A loan doesn’t trigger immediate taxes as long as the contract stays in force, but unpaid loans reduce your death benefit and future payouts.
Check your contract or call your insurer before pursuing any of these. Some immediate annuities offer no withdrawal or surrender options at all.
Steps to Complete the Sale
If you’ve weighed the alternatives and decided to sell, work through the process in order.
Start by pulling the key details from your contract or most recent benefit statement: policy number, exact payment amount, payment frequency, and how many years of payments remain. A factoring company needs those figures to calculate a present-value offer. For a structured settlement, you’ll also need your original settlement agreement.
Get quotes from several companies. When you accept one, you’ll sign a transfer agreement. For structured settlements, the company files a petition and schedules a court hearing. Court filing fees range from under $50 to several hundred dollars depending on jurisdiction. The factoring company usually pays these costs, but confirm that in writing, because some deduct filing fees and legal costs from your payout.
If the judge approves the transfer, the factoring company sends the signed court order to the insurance company issuing your payments. The insurer updates its records to redirect future payments to the buyer, which generally takes a few weeks. Once the insurer confirms the switch, the factoring company sends your lump sum by wire transfer or certified check.