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Single Pay Annuities

Single pay annuities, otherwise named single premium annuities, are annuities in which the purchaser pays one lump sum at one time in order to pay for the entire annuity. Single pay annuities usually require a minimum payment of $5,000 or $10,000 and annuity payments to the insurer can be deferred for many years. Between the time of payment into the annuity and the payments out of the annuity, the single pay annuity will collect interest, which will then be paid back to the annuity holder.

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. The annuity 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.

Examples of Sources of Funding

There are many ways to fund a single pay annuity. If the funds originate from a tax-deferred account such as an IRA, then the funds are not taxed until the annuity payments are made to the annuitant. This is called a “qualifying annuity”. 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 pay 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

Typs of Annuity Payments

Single pay annuities are not the only type of annuity payments. Annuity premiums can also be paid over a longer period of time through installments. Single pay annuities are simply a way to transfer large existing funds into an annuity account to be paid out (usually) at a later date.

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