A Single Premium Immediate Annuity, or SPIA as it is often abbreviated, is an investment contract backed by the assets of an insurance company. This type of contract provides for guaranteed income payments to the annuitant (the individual entitled to receive the income guaranteed by the contract) in exchange for a single lump sum or premium payment to the insurance company.

Single Premium Immediate Annuities are frequently favored by retirees as the guaranteed income payments can be set up to pay out in a number of ways depending on the annuitant's retirement or estate planning goals. For instance, a Single Premium Immediate Annuity can provide guaranteed income for a specified period of time. This pay out structure is referred to as a "period certain" annuity. A Single Premium Immediate Annuity can also provide guaranteed income for the life of the annuitant which is then referred to as a "life annuity". Within these payout structures are also a number of options which may provide for payments to continue to the annuitant's beneficiaries after the death of the annuitant. It is important for the annuitant to carefully consider which payout structure is appropriate for his or her income requirements as the method of payout determines the amount of the annuitant's guaranteed income, and is usually not subject to change, nor can the premium payment be returned once the income payments begin. This is typically within thirty days of the approval of the contract, but can be deferred up to one year.

Another favorable attribute an annuitant may find in a Single Premium Immediate Annuity is the fixed interest rate which is often higher than that which can be obtained with other fixed rate products such as a traditional CD. Because the interest rate is guaranteed by the insurance company, the investor need never be concerned that their annuitized payments will be adversely affected by negative fluctuations in the stock market and other financial indices.

The annuitant must also consider the tax consequences of a Single Premium Immediate Annuity. This type of annuity may be funded by pre-tax funds also referred to as "qualified" funds or it may be purchased with after tax or "non-qualified" funds. The income from a Single Premium Annuity purchased with "qualified" funds is only taxable to the annuitant when the income is received. This allows interest to grow in the annuitant's account tax deferred with the annuitant being taxed only once the income is received. If the annuity is purchased with "non-qualified" funds, the payment received by the annuitant is considered to be partially a return of the annuitant's original investment or initial premium, and partially taxable earnings.

A Single Premium Immediate Annuity can be a valuable tool which when utilized as part of a well thought out overall financial plan can provide years of peace of mind and financial benefit.