We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Accounting

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What are Periodic Payments?

Malcolm Tatum
By
Updated: May 16, 2024
Views: 30,536
Share

Periodic payments are a structured series of payments that are disbursed from some type of qualified financial plan. Payments of this type may be generated from an annuity program, any account that carries a fixed term of payments over the course of several years, or a qualified retirement plan. There are some exceptions, in which certain retirement plans are not considered to issue periodic payments, even if the disbursements are set to occur on a specific schedule over a number of years.

The idea behind periodic payments, as they relate to retirement plans, is to provide the owner of the account with a consistent stream of income. The series of payments may be structured to occur on a monthly, quarterly, semi-annual or annual basis, depending on the type of retirement program involved, and the terms that govern disbursements from the plan. While some plans are structured to issue payments based on the return generated by the principle amount contained within the plan, others are set up to incrementally disburse both any interest and a portion of the principle over a pre-determined number of years.

Many of these retirement plans allow the owners to defer the payment of taxes until funds are disbursed, a strategy that makes it possible to pay only on the amount that is actually received as periodic payments throughout the course of the tax year. Other plans require the payment of taxes at the time the funds are placed into the account, allowing the later disbursements to be tax-free. There are advantages to both approaches, and the investor seeking to establish a comprehensive retirement program would do well to consider each approach before making a final decision.

It is important to note that not all retirement plans are considered to include what is legally defined as periodic payments. Often, the distinction has to do with how the payments are treated for tax purposes, rather than the schedule used to make the disbursements. In the United States, most individual retirement plans or IRAs, are not considered to disburse periodic payments. The same is true of the individual savings account or ISA that is offered in the United Kingdom.

In order to determine if the periodic payments issued from any type of financial plan are subject to taxes, it is necessary to look closely at current tax law in the country of jurisdiction. Depending on the location, various annuity plans, mutual fund offerings, and other investment strategies that generate revenue from time to time may or may not be subject to withholding at the time the return is generated. Knowing exactly what is expected in terms of tax liability will help the investor to avoid incurring penalties when the payments actually occur, while also enjoying greater benefit from the funds issued from the plan.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By discographer — On Jul 05, 2014

Contractors or those who are self-employed usually receive periodic payments as well. Often times, the contractor will get to decide how often he or she wants the payments.

Contractors and self-employed also have to file quarterly taxes, unless they make less than a certain amount per year. In that case, they can file once a year like others. That's what I do because my annual income is below the threshold.

By fBoyle — On Jul 05, 2014

@ddljohn-- I don't think that there is an advantage with one type of periodic disbursement. But it depends on your needs and other sources of income.

If this is your only source of income, you might want to have it disbursed once a month so that you have enough for your monthly expenses. Some people also prefer to have theirs paid every three months or quarterly. The advantage with this is that you will receive a greater sum of money at once. So if you had delayed purchasing something more costly, then it might be beneficial to have the money paid quarterly.

If you're asking about advantages in regards to taxes, I don't think that there is an advantage. You might have to pay taxes for each quarter regardless of how frequently you receive the money.

By ddljohn — On Jul 04, 2014

Which type of retired periodic payments are best? Should I have mine disbursed monthly or quarterly? Is there an advantage with one type?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.smartcapitalmind.com/what-are-periodic-payments.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.