What happens if a withdrawal from a qualified annuity is made before age 59.5?

Making a withdrawal from a qualified annuity before reaching the age of 59.5 generally results in a 10 percent tax penalty on the amount withdrawn. This provision is established to encourage long-term savings for retirement and to discourage early withdrawals from tax-advantaged accounts such as annuities.

While there are specific circumstances under which early withdrawals might be exempt from the penalty—such as those related to disability, certain medical expenses, or a qualified domestic relations order—these exceptions do not apply to all situations. Therefore, for the majority of early withdrawals, the penalty is indeed a 10 percent tax on the amount distributed.

It's essential to remember that although the tax penalty applies, the withdrawn amount may still be subject to regular income tax, as qualified annuities grow tax-deferred until distribution. The withdrawal does not result in a decrease in value by a specific percentage (such as 50 percent), nor is it typically tax-free unless certain conditions are met.