Annuity ( or Annuity Contract)

Definition

A contract between an annuitant and the issuer which promises to pay the annuitant's income by the issuer. The annuitant is the client or the investor. The issuer is the financial institution which is usually the insurance company. The income is usually for a fixed period of time, over the life of the annuitant or the joint life of the annuitant and beneficiary.

 

Publication 575 defines an annuity as a series of payments under a contract made at regular intervals over a period of more than one full year. They can be either fixed (under which the annuitant receives a definite amount) or variable (not fixed)..

Referring Cite

Annuity contract, IRC § 403(b), IRS Publication 571, IRS Publication 575

Additional Helpful Information

  • Under a single annuity or single-life annuity, the annuitant usually receives payments for life, unless it is for a fixed period ( term certain) where payments are made for a fixed period.
  • Under a joint life annuity ( or joint and survivor annuity), the annuity payments are usually made to the annuity and continues to his/her surviving spouse after he/she dies
  • 403(b)s are can be funded with annuities, and are then referred to as tax-sheltered annuity (TSA) or tax deferred annuity (TDA)