Tax Facts

497 / What is a fixed immediate annuity?

A fixed immediate annuity is an immediate annuity (a contract in which regular annuity payments must commence no later than one year after purchase) in which the payments will remain level or increase only in accordance with a “cost of living” rider, if elected. The payments will persist for the entire annuity payout period, which may be a term of years, the lifetime(s) of one or two annuitants, or the latter, with a “refund provision” that will take effect if the annuitant(s) die prior to the refund guarantee period.

Some older fixed immediate annuities are not “commutable” (i.e., they cannot be modified after annuity payments begin). Others provide for commutation, including the right of the owner to take a cash settlement in lieu of future annuity payments.

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