What Does an Annuity’s Start Date Refer To?

An annuity serves as a contract between an individual and an insurance company, providing a stream of payments, often for retirement. Understanding the various dates associated with an annuity is important, particularly the “annuity start date.” This specific date is a central element of the contract, determining when income payments from the annuity officially begin. It represents a significant point in the annuity’s lifecycle, transitioning it from a period of accumulation to one of distribution.

Understanding the Annuity Start Date

The annuity start date, also known as the annuity commencement date or annuitization date, signifies the precise moment when the annuity contract begins its payout phase. This is the day the insurance company is obligated to start making regular income payments to the annuity owner, referred to as the annuitant. It is distinct from the date the annuity contract was initially purchased or issued, which merely marks the beginning of the contract itself.

Before this date, money within the annuity grows on a tax-deferred basis. Upon reaching the annuity start date, this accumulation phase concludes, and the contract shifts its purpose entirely to providing a steady income stream. It is the first day of the first period for which an amount is payable as an annuity.

Start Dates for Immediate and Deferred Annuities

The concept of the annuity start date applies differently depending on whether the annuity is immediate or deferred. For immediate annuities, the start date occurs very soon after the purchase. Payments begin within one month to 12 months of the contract’s issue date, making them suitable for those who need income right away. These annuities are often funded with a single, lump-sum payment and do not involve a lengthy accumulation period.

In contrast, deferred annuities are designed with a period of accumulation before payments commence. The annuity start date for these contracts is set for a future point, which could be several years or even decades after the purchase date. This extended period allows the invested funds to potentially grow over time, increasing the amount available for future income payments.

The Role of the Start Date in Payouts

When the annuity start date arrives, the contract officially transitions into its payout, or annuitization, phase. This is when the annuitant begins to receive regular income payments according to the terms selected in the annuity contract. The structure of these payments, such as whether they are for a fixed period or for the annuitant’s lifetime, is determined by the chosen payout option.

For example, a payout option might specify payments for a set number of years, or for the entire life of the annuitant, or even the joint lives of the annuitant and a beneficiary. The timing of the start date directly influences the amount of each payment; a later start date for a deferred annuity results in higher individual payments due to a longer accumulation period and the annuitant’s older age. The income received from an annuity’s payout phase is considered taxable ordinary income.

Setting and Modifying Your Annuity Start Date

An annuity owner has a degree of control over selecting the annuity start date, particularly with deferred annuities. When purchasing a deferred annuity, individuals choose a target date for income payments to begin, aligning with their financial planning goals, such as retirement. This initial selection is part of the annuity contract terms.

While the start date is initially chosen, many annuity contracts, especially deferred ones, offer flexibility to adjust this date later. An annuity owner may defer the start date further into the future or accelerate it, depending on the contract’s provisions. Such modifications affect the payment amounts, with later starts yielding higher payments. However, some contracts have less flexibility regarding start date changes.