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Multi-payment annuities refer to annuities that were purchased over a period of time with many separate, usually smaller, payments. A multi-payment annuity, also called a flexible premium annuity, can act a lot like a retirement account since payments tend to be flexible with standard minimums and maximums allowed during each cycle. Minimum payments are determined by the company through which the annuity was purchased and can range from as low as $50 to a couple of hundred dollars.
An annuity contract is a contract that an individual purchases from a company for a set amount of money in order for that company to pay back the amount over a period of time with interest. Annuity payments to the individual can occur over a specified period of time or for the remainder of the annuitant’s life. When these annuities are purchased over a period of time with small payments then it is called a multi-payment annuity.
Reasons to Purchase Multi-Payment Annuities
Maximum payments into annuities differ depending on the company through which the annuity was purchased. Beyond the required annual minimum, there is usually no set amount an individual must pay into the multi-payment annuity with each payment. Reasons for purchasing multi-payment annuities include:
- Small payments can be easier to manage over a long period of time
- Flexibility in amount paid into the annuity each year
- Flexibility in time between payments
- Individuals can decide to schedule payments or make payments on an unscheduled basis
In some cases multi-payment annuities can be tax-deferred and work similar to IRAs or 401(k) plans. Payments are tax-exempt until the annuity begins to pay out to the annuitant. Like retirement accounts, there are tax penalties for withdrawing money from an annuity before the multi-payment annuity has matured according to the contract.
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