About Immediate Annuities
If you have a lump sum of money that you want to convert into income, consider buying an immediate annuity. Use your savings, the proceeds of a 401k plan or any other accumulation of funds to purchase your annuity. An annuity can be set up to function like a pension or it can be used to hold funds you don't need right away.
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Identification
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Immediate annuities are also known as single premium annuities. By making one lump-sum investment, you pay an insurance company to provide you with income. Your age at the time you buy the annuity and the type of product you choose will determine your annuity payment.
Types
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Immediate annuities are available in a number of forms. The fixed-period annuity generates income for a specified number of years. The life annuity continues to pay out for the entire life of the annuitant. A lump-sum product issues you a single payment at a specified time.
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Features
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Once your annuity is set up, start taking payments after 30 days or take your withdrawal at a later time. When you buy an immediate annuity with after-tax funds, only the interest earned on your payments is taxable. If, however, you purchase the investment with money from a tax-deferred retirement account, you will pay tax on the full amount of your payouts.
Benefits
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Healthy individuals with a long life expectancy may benefit from an immediate annuity. The prospect of steady income for a lifetime can be comforting to risk-averse individuals who choose fixed-rate annuities. Some annuities allow you to withdraw principle from the annuity to use for emergencies or health-related expenses.Your annuity payments will be lower if you choose this option. You may also name your spouse as the beneficiary of your annuity; but that, too, will lower your annuity income.
Considerations
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Variable-rate immediate annuities are subject to the vacillations of the stock market and can be risky, especially for older persons. Unless you buy a fixed-term annuity, immediate annuity payments generally discontinue when you die, regardless of if you have used up your full investment. Buy your annuity from a high-quality insurance company. Annuities are not insured investment products, and you may lose money if your insurance company cannot meet its payment obligations.
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