Annuities are considered as contracts bought at a time or for a period of time to offer a stable income of a specific amount of money over a certain period of time. Annuities can also be considered as loans in reverse in which an annuitant or an individual pays an amount of money to an annuity company in exchange of an annuity contract that pays the amount of money back with interests to the individual or the annuitant over an amount of time. Sometimes an annuity payment lasts for a specific period of time; and sometimes the payment lasts for the remaining lifetime of the annuity holder.
Paying For the Annuities
There are several ways through which an individual or an annuitant can pay for buying an annuity. The individual can pay a lager amount of money at a time or pay smaller amounts for a period of time to get the desired amount of money in the annuity contract. If an annuitant wishes to provide the entire money at a time or if a company needs the whole amount of money of an annuity contract at a time, it is then considered as a single premium annuity.
With a single premium annuity, investments into an annuity are made all at a time in one large amount. The annuity is paid for all at a time and normally needs a minimum investment of $5,000 to $10,000. Even though, the annuity is bought all at a time, the payment out of that annuity may be deferred for several years. And, if the payment from the annuity is deferred, it can then collect interest which will be paid back to the individual or annuitant.
Examples of Funding Single-Premium Annuities
There are several methods to fund single premium annuities. If the fund originates from tax-deferred accounts such as IRAs, the annuity then can be considered as a qualified annuity in which funds aren't taxable till the payments are given to the individual or the annuity holder. If not, then the annuity is considered as a non-qualified annuity which could be financed by any source. Parts of payments to an annuity holder from the non-qualified annuities are not subjected to any tax. Below are few examples of funding sources for a single premium annuity:
- Large sum from the retirement plan payment
- Sale of an estate or a house
- Transfer of any matured Certificate of Deposit
- Sale of mutual funds and investments
- Proceeds from the life insurance settlements