A deferred payment annuity is a type of annuity contract that is structured to delay the initiation of payments to the annuitant or beneficiary until a designated future date. This type of arrangement is ideal for allowing the balance in the annuity account to increase with additional contributions or even the accrual of interest over time. In addition, a deferred payment annuity can be an ideal approach when there is a need to provide for a loved one at some point in the future.
With a deferred payment annuity, it is possible to stall the disbursement of payments to the beneficiary until a specific point in the future. This is different from an immediate payment annuity, in which disbursements are scheduled and commence shortly after the annuity account is funded. There are several ways to structure this type of annuity plan, using either a fixed annuity approach that disburses set amounts according to a schedule or a variable annuity in which the disbursements will change based on provisions built into the plan.
One of the more common applications of a deferred payment annuity is to provide financial support for the annuitant or another party at a later date. For example, a parent may create this type of annuity plan as a means of providing support to a child later on. The payments may be deferred until certain events occur, such as the child graduating from college, marrying, or even reaching a certain age. Depending on how the deferred payment annuity is structured, the disbursements may occur on a monthly, semi-annual, or annual basis.
The same general approach can be used to provide financial support for other loved ones. The individual establishing the deferred payment annuity may structure the plan to begin disbursements to a spouse or partner once the founder of the plan has passed away. Doing so makes is possible for the loved one to maintain an equitable standard of living as he or she adjusts to life without the deceased.
Setting up a deferred payment annuity is a relatively simple process. Most plans will call for depositing a minimum amount into the account at the time it is established. A plan administrator can help with the details of setting the criteria for disbursement of funds from the balance, as well as aid in helping find the plan that offers the best possible interest rates. Many plans will allow additional contributions to the annuity balance over time. In addition, tax breaks on the contributions are allowed in many nations, with some limitations imposed on the total amount of contributions that can be claimed as deductions during any given tax year.
