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What is a single premium immediate annuity?

A single premium immediate annuity (SPIA) is an annuity contract in which the purchaser pays an insurer a lump sum in exchange for an agreed upon series of payments starting immediately and lasting for a specific number of years or (more common) until the death of the beneficiary.

For those purchasers who are at or near age 70.5 and who need to supplement their social security income right away, a single premium immediate annuity may be a good alternative to a deferred income annuity or QLAC.  Because immediate annuities have no cash value and are a promise to pay a monthly, quarterly or annual amount to the annuitant, the policy holder would not be subject to required minimum distributions.  The annuity payments will, however, be subject to ordinary income in the year in which they are received by the annuitant. 

Ron Ryan

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Updated on Tue, 12 Mar 2019

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