Is Your Money “Stuck” for a Set Time? CDs, Bonds, and Annuities

Certificates of deposit, U.S. savings bonds, retirement accounts, annuities, irrevocable trusts, and structured settlements are the main financial products that lock your money for a set time. Each one uses a different mechanism — a contract term, a federal statute, a surrender schedule, a court order, or a trust document — and each carries its own cost for getting at the money before the clock runs out. Knowing which restriction applies to which account tells you what an early exit will actually cost.

Certificates of Deposit

A CD is a contract with a bank. You agree to leave the deposit in place for a fixed maturity period, commonly three months to five years, in exchange for a guaranteed interest rate. Before you open the account, federal regulation requires the bank to disclose the maturity date, the interest rate, and any early withdrawal penalty in writing.¹

Pulling money out early triggers that penalty. Federal rules set a floor of at least seven days’ interest but no ceiling, so each bank writes its own schedule.¹ In practice, penalties run from several months of interest to a flat percentage of the balance, and the longer the term, the steeper the penalty tends to be.

Brokered CDs

CDs bought through a brokerage firm work differently. There is no penalty paid to the bank. Instead, you sell the CD to another investor on a secondary market, and the price depends on where interest rates have moved. If rates are up, your fixed rate looks worse to buyers, and you can get back less than you deposited. Trading is thin — most holders keep CDs to maturity — so during stressed markets you may struggle to find a buyer at all.

Savings Bonds

Series I and Series EE savings bonds have a hard lockout. For the first 12 months after the issue date, you cannot redeem them at all. There is no early exit and no penalty option — the money is simply unavailable.²

After a year, you can cash the bond, but redeeming it before it has been held for five years forfeits the last three months of interest.² Cashing in at 18 months, for example, gives you 15 months of interest.³ Once you clear the five-year mark, the penalty disappears.

Retirement Accounts

Traditional IRAs, 401(k) plans, and similar tax-advantaged retirement accounts carry the strictest time restrictions because Congress, not a contract, sets them. Under 26 U.S.C. § 72(t), taking money out before age 59½ generally triggers a 10% additional tax on the taxable portion of the distribution, on top of the regular income tax you already owe.⁴

The restriction runs in both directions. Once you reach age 73, required minimum distributions kick in for traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer plans. If you are still working past 73 and own less than 5% of the company sponsoring your plan, you can delay RMDs from that specific employer plan until you retire.⁵

Getting Retirement Money Out Early Without the Penalty

The 10% penalty has more exceptions than most people realize. Federal law, expanded by the SECURE 2.0 Act, lists several situations where the additional tax does not apply:

A series of substantially equal periodic payments based on your life expectancy, continued for at least five years or until you reach 59½, whichever is later.⁶
Leaving your job during or after the year you turn 55, with distributions coming from that employer’s plan (age 50 for public safety employees).⁷
Total and permanent disability.⁴
Unreimbursed medical expenses above 7.5% of your adjusted gross income.⁷
Up to $10,000 from an IRA for a qualified first-time home purchase.⁷
Terminal illness certified by a physician.⁷

Employer plans can also permit hardship distributions for an immediate and heavy financial need. The IRS safe harbor list covers medical bills, costs to prevent eviction or foreclosure, funeral expenses, tuition and education fees, and certain home repairs.⁸ A hardship distribution still owes regular income tax, and whether the 10% penalty applies depends on whether a separate exception fits the expense.

Two new penalty-free options took effect in 2024. You can take one distribution per calendar year — the lesser of $1,000 or your vested balance above $1,000 — for an unforeseeable personal or family emergency. Victims of domestic abuse by a spouse or domestic partner can withdraw the lesser of $10,000 or 50% of the account balance without the 10% penalty.⁷

Employer Vesting Schedules

Employer matching contributions may sit in your account without actually belonging to you yet. Your own contributions are always fully vested. For the employer match in a defined contribution plan like a 401(k), federal law allows two minimum schedules:

Cliff vesting: nothing until three years of service, then 100% at once.⁹
Graded vesting: 20% after two years, then 20% more each year until you reach 100% after six years.⁹

Leaving before you are fully vested means forfeiting the unvested portion of the employer’s contributions. SIMPLE 401(k), safe harbor 401(k), SIMPLE IRA, and SEP plans are different: they require immediate 100% vesting of all employer contributions.¹⁰

Annuities

Insurance annuities use a surrender schedule to restrict access during the early years of the contract. Each year you can usually take out around 10% of the account value without a charge. Anything above that allowance triggers a surrender charge that declines over time.

A common schedule runs seven or eight years. A model illustration published by the National Association of Insurance Commissioners shows charges of 8%, 7%, 6%, 5%, 4%, 3%, and 2% across years one through seven, dropping to zero after year eight.¹¹ Actual charges vary by insurer and product, and state insurance codes set limits on the maximum.

If you are under 59½, you face a double hit. Annuities fall under the same retirement withdrawal rules in 26 U.S.C. § 72(t), so you owe the insurer’s surrender charge plus the 10% federal early distribution tax on the taxable portion.⁴

Irrevocable Trusts

Assets placed into an irrevocable trust are locked by the trust document itself. The grantor gives up control permanently and cannot change the terms once the document is signed. When and how a beneficiary receives distributions is whatever the document says, and nothing else.

Distribution conditions typically tie access to milestones — reaching a certain age, finishing a degree, or other events named in the trust. A trustee may also have discretion to distribute funds, but that discretion is often limited to the beneficiary’s health, education, support, or maintenance, a standard drawn from the federal tax code.¹² The trustee has a legal duty to enforce those limits. Beneficiaries generally cannot force distributions outside the trust’s terms, even in a genuine emergency.

Structured Settlements

A structured settlement pays out a legal award as a series of periodic payments, often stretching a decade or more. Getting the money sooner means selling some or all of the future payments to a third-party buyer in what federal law calls a factoring transaction. The buyer pays a discounted lump sum in exchange for the larger payment stream, and discount rates vary widely — recipients often net far less than the face value of the payments they give up.

Federal law discourages these deals. Under 26 U.S.C. § 5891, the buyer owes a 40% excise tax on the factoring discount unless a court approves the transfer in advance through a qualified order. The court must find that the transfer does not violate any federal or state law and is in the recipient’s best interest, taking the welfare of any dependents into account.¹³ Approval is not automatic. Judges regularly deny requests that would leave the seller worse off financially.

1
eCFR. 12 CFR Part 1030 – Truth in Savings (Regulation DD)
2
TreasuryDirect. I Bonds
3
eCFR. 31 CFR Part 351 Subpart B – Maturities, Redemption Values, and Investment Yields of Series EE Savings Bonds
4
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
5
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
6
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts – Section: (t)(2)(A)(iv)
7
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
8
Internal Revenue Service. Retirement Topics – Hardship Distributions
9
Office of the Law Revision Counsel. 26 USC 411 – Minimum Vesting Standards
10
U.S. Department of Labor. FAQs About Retirement Plans and ERISA
11
National Association of Insurance Commissioners. Annuity Disclosure Model Regulation
12
Office of the Law Revision Counsel. 26 USC 2041 – Powers of Appointment
13
Office of the Law Revision Counsel. 26 USC 5891 – Structured Settlement Factoring Transactions