What Is a SPIA?
SPIA Fundamentals
A clear explanation of how a Single Premium Immediate Annuity works, what it can provide, and what a buyer gives up in exchange.
One premium. An income promise.
A SPIA is an insurance contract. You pay a lump-sum premium to an insurance company and select an income option. Payments typically begin within one year and may be monthly, quarterly, semiannual or annual.
Income options matter.
A life-only option generally pays while the annuitant is living. Joint-life options can continue while either covered person is living. Period-certain and refund features may provide payments or value to beneficiaries, but adding those protections generally changes the income amount.
The central tradeoff is liquidity.
The premium is generally converted into contractual income rather than remaining in a readily accessible account. That is why emergency reserves, near-term spending and legacy goals should be evaluated before a purchase.
Tax treatment depends on the money used.
Payments from qualified retirement money are generally taxable when received. With nonqualified money, a portion of each payment may be treated as a return of cost and a portion as taxable income. Individual circumstances vary, so tax questions should be coordinated with a qualified tax professional.
Frequently Asked Questions
When do payments begin?
An immediate annuity typically begins payments within one year of purchase.
Can payments increase with inflation?
Some contracts offer increasing-payment options. Initial income is generally lower when increases or additional protections are selected.
Is a SPIA an investment account?
No. It is an insurance contract that exchanges a premium for specified income payments.
Annuities are insurance contracts intended for retirement or other long-term needs. Contractual guarantees are based on the claims-paying ability of the issuing insurance company. Annuity payments and available features vary by contract. Annuities may have limited or no liquidity after annuitization. This material is intended for general informational and educational purposes and is not a recommendation for any specific individual or situation. Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.