What Are Immediate Annuities?

Immediate annuities, which are sometimes referred to as Single Premium Immediate Annuities (SPIA), are annuities that let the recipient start collecting on their deposit almost immediately. These annuities are still contracts between the annuitant and the insurance company to deliver payments, but act as a source of income for the person receiving it. They are a common option for people close to retirement, as they don’t require long-term investment. However, immediate annuities do not earn as much interest as annuities that have been growing and earning interest for an extended period. 

 

Types of Rates for Immediate Annuities

These annuities can be customized with many different interest rates to fit your needs. Just like most annuities, immediate annuities are offered in fixed, variable, and adjustable interest rates based off of the preference of the investor. Fixed immediate annuities are more predictable than variable or adjustable but might not produce the highest dividends in the long run.

 

Buying Immediate Annuities

All immediate annuities are purchased with a lump sum. Unlike other types of annuities, such as deferred annuities, the investor does not have the option to deposit funds into their annuity over time because of the relatively fast turnaround for access.

 

Qualified Immediate Annuities

When using the words “qualified” or “non-qualified,” you can ultimately break it down to whether or not your annuity is taxable. Qualified annuities are taxable because the money that funds the annuity has not been taxed yet. These funds could be derived from any number of sources including, but not limited to:

  • 401(k) Plans
  • Personal IRAs
  • Contribution Plans
  • Employee Pension Plans

 

Non-Qualified Immediate Annuities

Non-qualified annuities, are not taxed on the funds placed into the account, but are instead taxed on the interest gained by the accounts as they age. 

The reason these accounts are not taxable is because the money being used to fund the annuity has already been taxed. Sources for non-qualified immediate annuity funding are:

  • Certificates of Deposit (CDs)
  • Inheritances
  • Money market accounts
  • Personal savings that have already been taxed

 

Qualities of Immediate Annuities

As with all annuities, immediate annuities allow you to receive funds from an insurance company rather than personally managing funds within a banking system or other investment strategy. By funding an annuity, you are giving up your ability to manage your funds and only can receive them at the allotted time as contracted by you and the insurance company.

In exchange for giving up the right to control your money freely, you receive tax-deferred growth,  the ability to plan for retirement, and the option for purchasing a Cost of Living Adjustment (COLA), which lets your payments keep up with the cost of living.

Selling Immediate Annuity Payments

Annuities are often useful for long-term financial stability. However, when circumstances change, you want to have options. Immediate annuity payments can be sold in exchange for a lump sum through a reasonably simple and convenient process — and we are here to help you through it! Call J.G. Wentworth or get a free quote online to get your money when you need it most.

 
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