Short answer
An immediate annuity turns a lump sum into income that starts right away.
The SEC says with an immediate annuity you make a single payment and typically start receiving income within a year. In exchange for the lump sum, the insurer pays you a set amount on a schedule, and you can choose payments that last for life, so you cannot outlive them. People sometimes call it a personal pension. It tends to suit someone who wants to convert a portion of savings into dependable income starting now.
Start here
What you actually came to find out
Plain answers first. Sources stay below for checking details.
When does income start?
The SEC says typically within a year of your single payment.
How long does it last?
You can choose payments that last for your whole life.
What do I give up?
Access to the lump sum, in exchange for the income.
Who does it suit?
Someone wanting dependable income starting now.
Start
Right away
The SEC says income typically starts within a year of the single payment.
Source trail: SEC
Duration
Up to lifetime
Payments can be set to last for your whole life.
Source trail: SEC
Tradeoff
Lump sum given up
You exchange access to the lump sum for the income stream.
Source trail: SEC
Taxes
Part tax-free
The IRS says part of each payment from a non-qualified annuity is a tax-free return of your investment.
Source trail: IRS: Publication 939: General Rule for Pensions and Annuities
The plain answer is that a SPIA is a savings-to-paycheck trade: you give up the lump sum and get a dependable income stream in return, often for life.
Neutral landscape
The shape of the question
The SEC is the main source because it defines the immediate annuity and its start timing.
Source trail: SEC
The lifetime option is the key feature, since payments can be set to last as long as you do.
Source trail: SEC
The tradeoff is liquidity, because the lump sum is exchanged for the income.
Source trail: SEC
The tax angle matters, and the IRS says part of each non-qualified payment is a tax-free return of investment.
Source trail: IRS: Publication 939: General Rule for Pensions and Annuities
Curator core
What the authorities say
These sources are here for the reader who wants to check the work. The plain-English answer stays above them.
Source 01
SEC
Annuities (Investor.gov)
The SEC investor education site explains the basic kinds of annuities, including immediate and deferred annuities and annuitization.
Source framing
The SEC says an immediate annuity starts income within about a year of a single payment, while a deferred annuity lets money grow before income begins.
Strongest for: neutral definitions of immediate, deferred, and annuitized annuities
Read at SECSource 02
IRS
Publication 939: General Rule for Pensions and Annuities
IRS Publication 939 explains how part of each annuity payment from a non-qualified annuity is a tax-free return of your investment.
Source framing
The IRS says each annuity payment is generally part tax-free return of your investment and part taxable, figured under the General Rule for a non-qualified annuity.
Strongest for: how annuity income is taxed under the General Rule
Read at IRSPlain-English forks
The forks people face
Most retirement questions hide a few smaller decisions. These are the practical pieces that change the plan.
Do you want income to start now?
Why it matters: Immediate annuities begin payments right away.
In real life: This fork fits an income-now goal.
What to look at: What to look at: the immediate annuity type.
Do you want it to last for life?
Why it matters: You can choose lifetime payments.
In real life: This fork sets the duration.
What to look at: What to look at: the payout options.
Is the money qualified or not?
Why it matters: Taxes differ for IRA money versus after-tax money.
In real life: This fork shapes the tax treatment.
What to look at: What to look at: the General Rule for non-qualified annuities.
Common questions
Quick answers
Short, plain answers for the questions people usually have next. The source trail stays available below.
What is an immediate annuity?+
The SEC says it is an annuity you buy with a single payment that typically starts paying income within a year.
Can the income last for life?+
Yes. You can choose payments that last for your whole life, so you cannot outlive them.
What do I give up?+
You exchange access to the lump sum for the income stream, so it trades liquidity for dependable income.
How is the income taxed?+
The IRS says part of each payment from a non-qualified annuity is a tax-free return of your investment and part is taxable, figured under the General Rule.
Who does an immediate annuity suit?+
It tends to suit someone who wants to turn a portion of savings into dependable income starting now.
How this page is curated
This page uses the SEC investor education site and IRS Publication 939. It is neutral education, not a recommendation to buy any product.
Read the planner methodologyTrust anchor
Sources used on this page
Every source named above is listed here in one place.
IRS. Publication 939: General Rule for Pensions and Annuities
https://www.irs.gov/publications/p939SEC. Annuities (Investor.gov)
https://www.investor.gov/introduction-investing/investing-basics/investment-products/annuities
Before you act on this
This plan is educational. It is not personalized financial, tax, or insurance advice. Projections illustrate the math, they do not predict the future. Talk to your own licensed financial professional before acting on any of it.