Single Premium Immediate Annuities (SPIAs)
Regular Retirement – Income Now And For Life
Immediate annuities can turn your assets into regular payments beginning now and lasting for the rest of your life or for a specified period of time. At retirement, you can use distributions from defined contribution plans, 401(k)s or IRAs to fund an immediate annuity to create a personal pension.
Immediate annuities are single-payment annuities. Any large sum of cash from an inheritance, legal settlement, sale of a business or home can be converted into an income stream for the duration you specify. Immediate Annuities are not intended to offer liquidity or growth potential. Once purchased, immediate annuities have no cash value, no payments other than the scheduled payments guaranteed under the contract are available.
Why should I consider buying an Immediate Annuity?
What are its advantages to me?
These are a many advantages that immediate annuities can provide to the buyer. Here is a list of just a few:
- Security- the annuity provides stable lifetime income which can never be outlived or which may be guaranteed for a specified period;
- Simplicity– the annuitant does not have to manage his investments, watch markets, report interest or dividends;
- High Returns– the interest rates used by insurance companies to calculate immediate annuity income are generally higher than CD or Treasury rates, and since part of the principal is returned with each payment, greater amounts are received than would be provided by interest alone;
- Preferred Tax Treatment– it lets you postpone paying taxes on some of the earnings you’ve accrued in a “tax-deferred” annuity when rolled into an immediate annuity (only the portion attributable to interest is taxable income, the bulk of the payments are nontaxable return of principal);
- Safety of Principal– funds are guaranteed by assets of insurer and not subject to the fluctuations of financial markets; and
- No sales or administrative charges
Single Premium Immediate Annuities (SPIAs) are particularly suitable for the following situations:
- Retirement from Employment
- Terminal Funding or Pension Terminations
- Retired Life Buyouts
- Structured Settlements for Personal Injury, Estate or Divorce cases
- Professional Sports Contracts
- Credit Enhancement and Loan Guarantee Transactions
Immediate Annuity Payout Options
Period Certain only: Income for a fixed number of years (5-20) with payments continuing to a named beneficiary should a death occur prior to the end of the period certain. Cannot pay out past the age of 100 for the owner or annuitant.
Life Only: Payments will be made only during your lifetime. After your death, no further payments will be made. No payments will be made to an estate or any other person.
Life and Period Certain: Income payable for your lifetime with a guaranteed payment period ranging from 5 to 20 years. If you die before the end of the period certain, payments continue to be made to a beneficiary until the end of the period certain. Cannot be paid out past age of 100.
Installment Refund: Payments are made during your lifetime. After your death, your beneficiaries continue to receive payments until all payments are equal to the single premium originally paid.
Cash Refund: Payments are made during your lifetime. After your death, your beneficiaries receive a lump sum payment equal to your single premium originally paid, less any payments received.
Joint Life with Survivorship: Payments are made for your lifetime and the lifetime of your spouse. After your death or the death of your spouse, payments continue to the surviving spouse for his/her lifetime.
Joint Life with Survivorship and Period Certain: Income payable for your lifetime and the lifetime of your spouse, with a guaranteed payment period ranging from 5 to 20 years. After your death or the death of your spouse, payments continue to the surviving spouse for his/her lifetime. If both you and your spouse die before the end of the period certain, payments continue to a named beneficiary until the end of the period certain. Payments cannot be set up to pay out past the age of 100.
Payments cease upon death of the annuitant. Period Certain payments (including Installment Refund annuity) continue to be paid to the beneficiary. The Death Benefit for a Cash Refund annuity will be equal to the premium paid less all benefit payments, if positive. For Joint Life with Survivorship options, upon the first death, payments continue to the surviving annuitant based on contract specifications.
Source of Funds – Qualified vs. Non-Qualified
Qualified Immediate Annuities
The term Qualified (when applied to Immediate Annuities) refers to the tax status of the source of funds used for purchasing the annuity. These are premium dollars which until now have “qualified” for IRS exemption from income taxes. The whole payment received each month from a qualified annuity is taxable as income (since income taxes have not yet been paid on these funds). Qualified annuities may either come from corporate-sponsored retirement plans (such as Defined Benefit or Defined Contribution Plans), Lump Sum distributions from such retirement plans, or from such individual retirement arrangements as IRAs, SEPs, and Section 403(b) tax-sheltered annuities, or Section 1035 annuity or life insurance exchanges. Generally speaking, insurance companies use male/female (sex-distinct) rates to price qualified annuities in situations where the purchaser and/or owner is a corporation. When the annuity is being purchased by an individual, annuity rates are generally unisex. Some states, however, require that unisex rates be used for all qualified annuities.
Non-Qualified Immediate Annuities
Non Qualified immediate annuities are purchased with monies which have not enjoyed any tax-sheltered status and for which taxes have already been paid. A part of each monthly payment is considered a return of previously taxed principal and therefore excluded from taxation. The amount excluded from taxes is calculated by an Exclusion Ratio, which appears on most annuity quotation sheets.Non-qualified annuities may be purchased by employers for situations such as deferred compensation or supplemental income programs, or by individuals investing their after-tax savings accounts or money market accounts, CD’s, proceeds from the sale of a house, business, mutual funds, other investments, or from an inheritance or proceeds from a life insurance settlement. While most insurance companies apply their male/female (sex-distinct) tables to non-qualified annuities, some states require the use of unisex rates for both males and females.
To obtain an Immediate Annuity quote, illustrations of just more information, please contact us and we will be happy to help you see if an Immediate Annuity is right for you.