Single Premium Immediate Annuities (SPIAs) are the grandaddy of all annuities. They have been around since the Roman times, and are a simple transfer of risk pension strategy that has no annual fees and is easy to understand. Income can start as early as 30 days after the policy has been issue, or those payments can be deferred for a year. Pretty basic pro-consumer stuff.
Once you defer past the one year time period, a SPIA turns into a DIA (Deferred Income Annuity). It’s the same structure. No moving parts. No annual fees.
DIAs allow you to defer payments as short as 13 months and as far out as 45 years depending on the carrier. In my simplistic contractual guaranteed world, SPIAs solve for “Income Now” while Deferred Income Annuities (DIAs) solve for “Income Later.”
DIAs can be used in Traditional IRAs, non-IRA (i.e. non-qualified), and Roth IRA accounts. The guarantees are the same regardless of the account you use, the only difference is how the income will be taxed. In a Traditional IRA, all of the income stream is taxed at ordinary income levels. In a non-IRA account, a portion of that income stream is taxed while the other part is not. DIA income is a combination of return of principal + interest…so only the interest portion is taxable. With a Roth IRA, DIA income is completely tax-free.
You can customize the structure of the payments to guarantee a lifetime income stream and assure that 100% of any unused $$ goes to your listed beneficiaries. In other words, the annuity company doesn’t keep a penny. Those structure names are “Life with Installment Refund” or “Life with Cash Refund.”
A limitation of a DIA that you need to be aware of is the fact that there is no “trackable” interest rate growth during the deferral time period. In other words, if you die 5 years into a 10 year deferral, your beneficiaries will get all of your initial premium back with no interest. However, the longer you let the annuity company “hold” onto the $$, the more they will enhance the payment. In the south we would call that, “the more it cooks, the more you get.”
I have written a DIA Owner’s Manual that I will ship to you for free and under no obligation. Simply click here to fill out your address. In addition, if you want to get your own customized DIA quote, click here to fill out your confidential information and I will email you the best contractual guarantees for your specific situation…quoting all carriers.