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Single Premium Annuities

An annuity is a contract purchased all at once or over a period of time to provide a steady income of specified amounts over a specified period of time. An annuity can be considered a loan in reverse in which an individual or annuitant gives a sum of money to a company in exchange for an annuity contract which pays the sum of money back to the annuitant over a period of time with interest. Sometimes the annuity payments last over a specified period of time and sometimes the annuity payments last for the remainder of the annuitant’s life.

Paying for an Annuity

There are a variety of ways in which an individual can pay for an annuity. He or she can pay a lump sum all at once or give small amounts over a period of time to reach the desired sum of money in an annuity contract. If an individual desires to pay the entire sum at once or if the annuity company requires the entire sum of an annuity paid at one time, then this is considered a single-premium annuity.

With Single-Premium Annuities the investment into the annuity is made all at once in one lump sum. The annuity contract is paid for all at one time and usually requires a minimum investment of at least $5,000 or $10,000. Although the annuity has been purchased all at once, the payment out of the annuity can be deferred for many years. If payment from an annuity is deferred, the annuity can collect interest which will also be paid back to the annuitant.

Examples of Funding a Single Premium Annuity

There are many ways to fund a single-premium annuity. If the funds originate from a tax-deferred account such as an IRA, then the annuity can count as a qualified annuity in which the funds are not taxed until the annuity payments are made to the annuitant. Otherwise, the annuity can exist as a non-qualified annuity and can be funded from any source. Portions of payments to the annuitant from a non-qualified annuity are not subject to taxes. Some examples of sources of funding for a single-premium annuity are:

  • Lump sum from a retirement plan payout
  • Transfer of a maturing Certificate of Deposit
  • Sale of a house or estate
  • Sale of investments or mutual funds
  • Proceeds from a life insurance settlement
  • Inheritance

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