Consider these three things if you want to get rid of an annuity you no longer want or need. By Kimberly Lankford, Contributing Editor December 31, 2006 If you own a deferred variable annuity or an equity-indexed annuity that you no longer want or need, you have several options. The best solution will depend on three things: how long you've owned the annuity, the amount of the surrender charge and the tax consequences of cashing out. RELATED LINKS The Great Annuity Rip-Off Guarantee Income in Retirement Surrender charges. If you still have several years to go before the surrender period expires, it's best to sit tight. In most cases, it's not worth paying a surrender fee just to find a new investment. Most deferred annuities let you withdraw up to 10% of your balance or initial investment each year without a surrender charge. That may provide you with sufficient retirement income while the clock runs down on your surrender period. If the surrender period is almost over and the surrender charge is dwindling, it may be time to jump ship, even if it means taking a small hit to get out. Moving your money to a company such as Vanguard or Ameritas that offers annuities with low annual fees and better investment choices could save you money in the long run. Tax consequences. If you own the annuity inside an IRA or other retirement account, you can cash it out and reinvest the money without a tax hit as long as it stays in the account. Any money that you withdraw from a retirement account (other than a Roth IRA) is taxed at your regular income-tax rate. Advertisement If you own an annuity outside of a retirement account and you cash it out, you will owe taxes on any earnings at your regular income-tax rate, not the lower capital-gains rate reserved for most other investments. The part of the payout that represents a return of your initial investment would be tax-free. However, you can postpone your tax bill by using a tactic known as a 1035 exchange to swap your annuity for another. Blow the whistle. If you believe you were misled when you bought the annuity -- especially if you're hit with a big surrender charge that you didn't know about -- contact your state insurance and securities regulators. That sometimes motivates the insurer to let you withdraw money from a contract without penalty. At the very least, filing a complaint could warn other investors. "We often hear that senior citizens are embarrassed because they feel they've been taken advantage of," says Barry Lanier, chief of the Bureau of Investigation for the Florida Department of Financial Services. "But they can help both themselves and future victims."