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Planning Opportunities with SPIAs

We are kicking off our National Annuity Awareness Month series by highlighting 4 retirement planning opportunities utilizing SPIAs. But first, what exactly is a SPIA?

A single premium immediate annuity (SPIA) is an annuity purchased with one large upfront payment that immediately begins paying you back your purchase price plus a modest interest rate in installments. SPIAs are one of the simplest types of annuity contracts.

4 Retirement Planning Opportunities Utilizing SPIAs:

1.  Taking Distributions Before Age 59½

Since distributions coming from a SPIA funded with cash are exempt from the additional 10% federal tax for early distribution, a SPIA can be a unique and useful tool to generate income before age 59½. Even if the SPIA is funded via 1035 exchange, the payments will still be exempt from the additional 10% federal tax for early distribution if the annuity option selected is life contingent.

2.  Bridging the Gap to Social Security Benefits

Early retirees can use a Period Certain SPIA to delay taking Social Security benefits (to accumulate a higher Social Security benefit amount) and bridge that gap between retiring and the time they start collecting benefits.

3.  Funding Liabilities

Owners can use a SPIA to fund payment of a life insurance policy, long-term care, trust or other obligation that will last for a specified period of time (or the remainder of the owner’s life).

4.  Tax Management

Owners can use the exclusion ratio treatment a SPIA provides to spread out their tax liabilities over a period of years. This is particularly attractive to more affluent retirees because part of each payment is a return of principal and would not be considered taxable ordinary income.


Do you have clients who could benefit from any of these strategies? 

Call Madison Brokerage today at (973) 435-3784, or e-mail