single-premium deferred annuity

Single-Premium Deferred Annuity (SPDA)

An IRA-like annuity into which an investor makes a lump-sum payment that is invested in either a fixed-return instrument or a variable-return portfolio, which is taxed only when distributions are taken.

Single Premium Deferred Annuity

An annuity purchased with a lump sum payment by the annuitant, who does not begin to receive payments until some future date. Like all deferred annuities, an SPDA has two phases, a savings phase and an income phase. The savings phase involves the annuity taking the lump sum payment and investing it on behalf of the annuitant. In the income phase, the annuitant receives payments. It is important to note that an SPDA, like all deferred annuities, is not taxed until the income phase begins. It also pays a death benefit to the survivor(s) of the annuitant. See also: IRA, 401(k).

single-premium deferred annuity

A deferred annuity purchase having one lump-sum premium payment. Single-premium deferred annuities offer the tax benefit of increasing in value tax-free until distribution takes place. Thus, an investor could pay a large single premium, have the investment build up free of taxes for a period of years, and then receive partially taxable annuity payments at retirement. A single-premium deferred annuity is more flexible than an individual retirement account, but unlike contributions by some individuals to an IRA, a premium to purchase a deferred annuity is not deductible for tax purposes. Compare periodic purchase deferred contract.