An immediate annuity is a contract/policy that is usually purchased from an insurance company. Immediate annuities are commonly used as retirement vehicles and purchased with a lump sum. The immediate annuity provides regular income that should continue for the rest of one’s life or for a time period that the policyholder selects.
The immediate annuity is also sometimes known as a Single Premium Immediate Annuity. The income should begin within one year from the date of purchase. There are a variety of different options available to you when purchasing an immediate annuity. You can decide whether you would like a set period of payments or a lifetime of payments. You can also decide on whether the payments are solely for the person who holds the policy or also for a secondary person, such as a spouse or child.
There are a number of factors to consider when purchasing an immediate annuity. The minimum amount required is usually around 10,000 US dollars (USD). The deposit can be tax deductible, or it can also be a non-taxable contribution.
When you purchase an immediate annuity, the monthly repayments will not vary for the life span of the policy holder. The interest rates on the contribution will also remain the same for the life of either the policyholder or the contract. The insurance company that issues the policy will guarantee that the rates and the payout of the policy will never change. The payments that you receive from an immediate annuity depend on the sum you have paid in, as well as the current rate of interest when you purchased the policy and the type of payout you specify. Payments also vary depending on the age of the purchasers of the policy.
Another point to remember is that, if you use qualified funds, then a large percentage of the monthly payout will be tax free. This is because the government considers the payout to be a return of capital. Only the percentage of the money considered earnings is taxable. If you receive your immediate annuity within a company pension, it is fully taxable.
An immediate annuity is a sound financial product that offers peace of mind for the future. It is not available from all insurance companies and is US State specific. You should always check with a financial advisor and make sure you shop around for the best policy quotes before purchase.
This information is not intended to be tax or legal advice, and it may
not be relied on for the purpose of avoiding any federal tax penalties.
You are encouraged to seek tax or legal advice from an independent