A charge to annuity contract owners who withdraw funds during the “surrender charge period” or the first several years of the contract. Early withdrawal fees are also referred to as surrender charges and surrender fees. The specific terms will vary among insurance companies and contracts, but early withdrawal fees are typically assessed as a percentage of the contract value for withdrawals that exceed a certain percentage of the contract value. For example, an annuity may have a 7% surrender charge for any withdrawal in excess of 10% of the premiums paid. Assume that a person paid $100,000 in premiums and withdraws $50,000 during the first year. In this case, the early withdrawal fee would be $3,500 ($50,000 x 7%). The early withdrawal fee will often reduce a certain percent each year—typically 1% each year—until it disappears. The expenses are significant, so it is critical to ask about and understand early withdrawal fees before entering into a new annuity contract or considering a 1035 exchange.