If you have a structured settlement, you may be wondering if it’s time to sell. This can be a difficult decision to make, but it’s important to know all of your options before deciding. We will discuss six things you need to know about selling structured settlements.
1. Selling Your Annuity
Anyone considering selling their structured settlement will want to consider whether or not to sell their annuity. An annuity is an investment account where you can save money for the future or take monthly payments for a certain period. When you sell your annuity, you will receive a lump sum in exchange. However, the factors below can complicate selling your structured settlement annuity:
- The 10 percent penalty charged for cashing out an annuity before age 59.5
- The sales commission you will pay to an annuity broker
- The tax implications associated with selling an annuity as opposed to selling a structured settlement
2. How to Sell a Structured Settlement
There are several ways to sell a structured settlement. You can use an online brokerage firm or sell your settlement to a direct buyer or structured settlement professional. Using a broker will allow you to investigate the interest rates on an annuity while still having access to competitive offers for your structured settlement. If you have a structured settlement, you may want to sell it directly to a structured settlement company or professional. The buyer will pay out your annuity over time, usually by making annual tax-free payments. Be aware that if you sell your structured settlement to a direct buyer, they may have the right to contact your attorney and change the terms of your settlement.
3. The Tax Implications of Selling a Structured Settlement
When you sell a structured settlement, you will pay taxes on it, the same way you would pay taxes if you cashed out an annuity. The amount of money you receive from your structured settlement will be considered a return on investment and taxed accordingly. The tax rate for this return on investment varies, but it can be as high as 39 percent, depending on your income bracket.
4. Know the Value of Your Annuity
You may also need to know how much your structured settlement or annuity is worth before you decide whether to sell it for a lump sum or keep it until the end of its term. An excellent way to find out is by requesting an actuarial analysis, which will give you a more accurate estimate of how much your settlement is worth.
5. Know That There Are Alternatives to Selling Your Structured Settlement
Before you sell your structured settlement, you may want to consider how it will change your life. If you don’t need more immediate cash and plan to live off your social security checks in retirement, you might want to keep your structured settlement. That way, when the policy matures in 20 years or more, you will have an extra financial cushion to help cover expenses during retirement.
6. You Can’t Always Get What You Want When It Comes to Selling Structured Settlements
There are certain circumstances in which it will be virtually impossible to sell your structured settlements. If the structured settlement was part of a personal injury claim and was set up as compensation for pain and suffering, it’s not possible to cash out the annuity or sell it. You can only receive payments from the annuity. If you want to sell your structured settlement, you will need to get permission from the court that set it up and any parties involved in the claim. If you’re not the one who filed the personal injury lawsuit and are just getting compensation, you’ll have to get permission from anyone who was involved in the case.
Selling a structured settlement can be a good option if you have immediate financial needs. However, it may make more sense to keep the settlement for its full term. You can receive tax-free annuity payments, which are more advantageous than a lump sum amount that will be taxed at a high rate. You also need to be aware of the tax implications before selling your structured settlement or annuity. You could end up paying a great deal of tax money if you don’t consider this.