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I assume you mean a deferred annuity...which actually isn't an annuity, as nothing has yet been annuitized. This is really a tax deferred savings plan....check EXPENSIVE tax deferred savings plan.

What her options are will depend on the contract and state law, and these vary. Unless this "annuity" was held inside a tax deferred vehicle, such as a 403(b), a portion of it should be basis (the amounts she contributed to it over the years) and will not be taxed upon cash-out.

But as was mentioned, I would see if the contract offers a form of structured payouts rather than a lump sum. I can't imagine why the insurer would balk at this, as they will be able to continue to assess their exorbitant expenses on the undistributed balance. It may be that this is a state code.

And when you say the 'payments are fixed at such a low amount", what do you mean? Do you mean the payment it's self is small relative to the annuity's value, or that the interest rate used is very small? If the former, I can't image why, as the annuity payment should be based on her life expectancy, which would not be very many years, hence payments should be, I'd guess, about 10% of the annuity balance per year.

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