What Is Single Premium Deferred Annuity?
The single premium deferred annuity is an annuity contract established by a one-time lump sum payment by the client. The single premium deferred annuity will grow in the basis of tax deferral until the point of annuitization. With the single premium deferred annuity, you can opt for a fixed or variable annuity and the distribution will only be subject to tax when you take them. With this type of annuity, there are no investment limits on how much you are willing to invest on your account. You might think that the single premium deferred annuity is similar to immediate payments but there are numerous differences. Single premium deferred annuity is different in terms of growth since they are tax deferred for a specific duration of time annuitization arrives. They are also different from those flexible contracts since you only pay a single lump sum for the single premium deferred. If you have a steady income flow and if you have disposable lump sum amount that you can invest, then the single premium deferred annuity is ideal for your needs.
With immediate payment types you pay a lump sum and receive annuities immediately. In the case of single premium deferred annuity, the annuity will only be activated when you reach the age of 55, 60 or even 70. Thus, this is designed as a unique retirement fund and investment tool so that you can enjoy steady cash flow if you decided to leave your job and enjoy your retirement. When you make contributions or accumulate interest in the single premium deferred annuity, they are tax deferred until the time the payments are ready for release. When the owner is annuitized, he or she can opt to receive the benefits on a lump sum basis or through installments. If he opts for the latter option, he is assured of guaranteed income for the rest of his life. Or until the end of the time period that he has chosen.
With the single premium deferred annuity, you can opt for a qualified or non-qualified option. With the qualified type, the annuities can be written on a 401k, SEP-IRA, an IRA, or profit sharing plans. With this, you get a pretty good treatment from IRS and you can also enjoy the contributions and payments that are tax deductible. On the other hand, the non qualified single premium deferred annuity is purchased by the individual so you do not get favorable tax benefits and the contributions cannot also be considered as tax deductible.
In terms of withdrawals, the money you get from single premium deferred annuity begins by releasing the interest first. That means the money you withdraw is subject to income tax till the interest has been paid out. There is a tax penalty of 10% on the taxable amount that you receive which is also imposed to those tax payers who are below the age of 59 ½ who are already receiving annuity distributions. Select the best annuity for your retirement. Select your state and receive quotes from top insurance companies in your area.