A Single Premium Immediate Annuity (sometimes referred to as an “SPIA”) may be the right annuity for you if you are looking for payments that begin right away and continue for the rest of your life or for a specified period of time. The annuity is purchased from an insurance company with a single, lump sum amount called a premium.



You can fund your immediate annuity in a number of ways:

  • Cash from a maturing Certificate of Deposit (CD)
  • Exchanging funds accumulated in a Multi-Year Deferred Annuity account
  • Proceeds from the sale of stocks, bonds, a home or a business


In return for your lump sum, the insurance company promises to make regular payments to you (or to a payee you specify) for the chosen length of time – most commonly for the remainder of your life, however long that may be.

In most instances, immediate annuity payments are sent to you starting one month after you buy your annuity. When choosing an immediate annuity, you can choose how frequently you receive payments – often referred to as the “mode”. While annuity buyers typically choose to receive payments monthly, you may choose quarterly or even yearly instead.

In today’s immediate annuity marketplace, there are a number of ways the annuity can be customized to suit your specific life situation and concerns. In exchange for the guarantee of payments, you give up the right to demand the return of your original premium. Unlike some forms of life insurance or other types of annuities, you are generally unable to revise or cash in the immediate annuity once the “free look” period has passed.



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America's Retirement Planners

Postpone RMDs with a Deferred Income Annuity (QLAC)

Most retirees don’t need to tap their IRA accounts early in retirement. Yet, required minimum distribution (“RMD”) rules force them to begin taking money from their IRAs as soon as they reach age 70-1/2.

If you’re in this situation and you want to avoid taking some RMDs until much later in retirement there now is an annuity strategy you can follow. It’s called the Qualifying Longevity Annuity Contract or QLAC.

In July, 2014, the IRS approved the purchase of QLACs in IRA accounts. With a QLAC you can delay taking RMDs from your IRA for up to 15 years, to as late as age 85. By delaying RMDs you gain a significant tax advantage.

What exactly is a QLAC?

A QLAC is a new breed of longevity annuity (also known as deferred income annuity). You set up a QLAC by transferring money from any of your existing IRA or 401k accounts to an insurance company annuity. Your QLAC is designed to pay you a steady monthly income later in life.

The annuity that makes up a QLAC isn’t a new idea. Longevity annuities have been around for years. But the way the IRS now treats a longevity annuity within a tax-deferred retirement account, such as an IRA or 401(k), has changed.


Before we delve into the details, let’s first explain how a QLAC longevity annuity works. This is an annuity in which you pay a lump sum premium to an insurance company and then at a future date which you specify today, you begin receiving a guaranteed monthly payout amount that continues for as long as you (or your spouse) are alive.
The beauty of the longevity annuity is that the insurance company tells you today exactly how much income you will begin receiving in the future. There is no stock market or interest rate risk. The future income amount that’s quoted is guaranteed!
With a longevity annuity you get income security that starts in your old age and at an attractive price. Financial planners estimate that if you own a longevity annuity you can increase the amount you withdraw from your savings in the early years of retirement by as much as 30% because of the reassurance in knowing your income in later retirement is guaranteed by the annuity.
Another appeal of QLACs is that they are straightforward and transparent. They are easy to understand, they require only one upfront payment and have no annual fees.


Fixed annuities are essentially CD-like investments issued by insurance companies, not banks. These are (ROP) return of principal annuities. A fixed annuity is a contract between you – the annuitant – and an insurance company, who by contract promises to pay you a certain amount of money, on a periodic basis, for a specific period. A fixed annuity has maturity dates which can be as short as 3 years and as long as 10 years.


Fixed Annuity Can Offer:

  • Principal Protection
  • Tax-deferred Growth
  • Fixed Rate of Interest
  • Income Options Now or Later
  • Shorter Term Maturities 3-10 Years


At maturity, the insurance company will return the original principal (ROP) back to the owner along with the interest for that specific time frame. Like CDs, they pay guaranteed rates of interest and in many cases higher than bank CDs. Fixed annuities par guaranteed rates of interest, which makes them appealing to investors wary of the stock market’s ups and downs. What also makes fixed annuities appealing are their low investment minimums and the fact that the interest paid by the insurance company is tax-deferred unlike a CD bank, therefore the individual who owns the fixed annuity does not have to pay taxes on the interest until the money is withdrawn from the fixed annuity.


A fixed-index annuity provides the guarantees of fixed annuities, combined with the opportunity to earn interest based on changes in an external market index, for example the S&P 500, Nasdaq 100, and the Russell 2000. With a fixed-index annuity, because you’re not participating in the market, the money in your annuity (your “principal”) is not at risk. A fixed-index annuity may be a good choice if you want the opportunity for growth and accumulation, but don’t want to risk losing money in the market.



How a Fixed-Index Annuity Works

Most fixed index annuities have two phases. First, there’s an accumulation phase, during which you let your money earn interest. This is followed by a distribution or payout phase, during which you receive money from your annuity.

A fixed-index annuity also guarantees you will receive at least the minimum guaranteed interest credited to the contract. Remember that all of these guarantees are backed by the claims-paying ability of the issuing company.


Phase 1: Accumulation

The accumulation phase begins as soon as you purchase your annuity. Your annuity can earn a fixed rate of interest that is guaranteed by the insurance company or an interest rate based on the growth of an external index.


Phase 2: Distribution

The distribution phase of a fixed-index annuity begins when you choose to receive income payments. You can always take income payments. You can always take income in the form of scheduled annuitization payments over a period of time, including your lifetime. And many fixed-index annuities allow you to take income withdrawals as an alternative to annuitization payments. Either way, you can choose from several different payout options based on your personal needs, including options for guaranteed lifetime income.


A fixed-index annuity (FIA) offers a unique combination of benefits that can help you achieve your long-term goals. No other product offers the tax deferral, indexed interest potential, and optional benefits to protect your retirement assets and income.


Tax Deferral

Under current federal income tax law, any interest earned in your fixed-index annuity contract is tax-deferred. You don’t have to pay ordinary income taxes on any taxable portion until you begin receiving money from your contract. Withdrawals are taxed as ordinary income and, if taken prior to age 59 1/2, a 10% federal additional tax may apply.


Indexed Interest Potential

Fixed index annuities provide an opportunity for potential interest growth based on changes in one or more indexes. Because of this potential indexed interest, FIAs provide a unique opportunity for accumulation. And since the interest your contract earns is tax-deferred, it may accumulate assets faster. In addition to potential indexed interest, FIAs can offer you an option to receive fixed interest.



Fixed-index annuities offer you a level of protection you may find reassuring. That protection can benefit you in three separate ways:

  • Accumulation: Your principal and credited interests are protected.
  • Guaranteed Income: You can be protected from the possibility of outliving your assets.
  • Death Benefit: If you pass away before annuity payments begin, a fixed annuity may help you provide for your loved ones.


Insurance Company

This is the company that issues the annuity. The insurance company is responsible for backing the annuity’s guarantees.

Contract Owner/Annuitant

These usually are the same person, but they can be different. The owner makes decisions about the annuity, such as who the beneficiaries are. The annuitant is the person whose life expectancy is used to calculate annuity payments.


The beneficiary is the person who receives the annuity’s death benefit. Naming one or more beneficiaries other than the estate is important because without a beneficiary, the money in your annuity could be subject to probate.

Is a Fixed-Index Annuity Right for You?

The answer is, “maybe.”
Only you know your goals for retirement, so only you can determine your needs. A fixed-index annuity isn’t the right solution for everyone, and you shouldn’t buy one unless it’s appropriate for your situation.

You may want to consider a fixed index annuity if the following benefits are important to you:

Tax deferral to help you reach your retirement goals
Indexed interest potential to help accumulate your retirement savings
Protection benefits that can help protect your retirement assets and income
Purchasing an annuity is an important decision, and one you should only make after consulting with your financial professional.

Because the guarantees on an annuity are important, it’s important to consider who backs those guarantees. The guarantees are backed solely by the insurance company that issues the annuity. That’s why you should know about the financial strength and stability of the company. Ask about their:

  • Ratings – independent agencies’ opinions of a company’s strength and ability to meet its ongoing insurance policy and contract obligations.
  • Risk Management Capabilities – a company’s track record of successfully hedging against potentially extreme market events.
  • Management Philosophy – a company’s commitment to stability and reliable, long-term performance.