Single Premium Deferred Annuity

What Does Single Premium Deferred Annuity Mean?

A Single-Premium Deferred Annuity (SPDA) is a type of annuity purchased with a one-time lump-sum payment. During its saving phase, the earnings grow on a tax-deferred basis. The payout phase can either provide guaranteed payments or vary based on the performance of the investments made during the saving phase. SPDAs are one of several types of annuities available to retirement savers, each with different funding and payout structures.

Insuranceopedia Explains Single Premium Deferred Annuity

The standout feature of the Single-Premium Deferred Annuity (SPDA) is its tax deferral. Once purchased with a lump-sum payment, the investment grows without being taxed, even as it earns interest. This makes it an attractive option for individuals nearing retirement who have saved enough to make the initial investment. Because the growth inside the contract is not taxed until withdrawal, it helps to understand how life insurance and annuity payouts are taxed when planning around one.

The annuitant can choose between fixed or variable distribution options. A fixed option provides a guaranteed steady income in the future, while a variable option allows the annuity to be invested in securities, potentially yielding higher returns.

Like other annuities, an SPDA also includes a death benefit, ensuring financial security for the beneficiary.