What Is a Single Premium Deferred Annuity (SPDA)?

A Single Premium Deferred Annuity is a retirement plan in the form of an insurance contract. SPDA is similar to whole life insurance in that the owner invests a lump sum and makes annual payments into an account It provides for tax-deferred or tax-exempt growth of your contributions and accumulated earnings. Single Premium Deferred Annuity is paid out once it matures.  It allows people to invest in high-yielding fixed, fixed-indexed, or variable annuities without the need for monthly payments. 

How Single Premium Deferred Annuity Works 

This annuity is designed for individuals who have a long time before they need access to the funds they put into them. Single Premium Deferred Annuity allows the owner to make a lump-sum payment for an insurance contract.  The Single Premium Deferred Annuity guarantee is backed by the claims-paying ability of the issuer, which provides Single Premium Deferred Annuities directly from its own financial strength.  You are not required to make any additional payments as long as the Single Premium Deferred Annuity contract remains in force.  This will mature at some point in the future and you can use the money accumulated in the account to pay for a variety of expenses, such as retirement, college expenses, or even purchase a home.

Things to Consider When Purchasing Single Premium Deferred Annuities

Anyone who wants to make the most of their money should consider Single Premium Deferred Annuities. This is one of the top choices for people who invest in the stock market because they combine the security of annuities with the potential for growth.  There are a variety of Single Premium Deferred Annuity options to choose from, and it is important to consider all your needs before selecting one.  Some Single Premium Deferred Annuity contracts have surrender charges that apply if the contract is cancelled before the maturity date. Be sure to understand how Single Premium Deferred Annuity works before you invest. 

Single Premium Deferred Annuities Benefits 

These annuities have several attractive features for investors:

Tax-Deferred Growth

Earnings grow tax-deferred until you withdraw the money. This means you don’t have to pay taxes on the growth of your investment until you take the money out.

Flexibility

You can choose from a variety of Single Premium Deferred Annuity contracts with different features, such as death benefits and maturity dates. 

Protection From Creditors

In many cases, Single Premium Deferred Annuity contracts are protected from creditors. This means that your Single Premium Deferred Annuity cannot be seized by creditors in the event of a bankruptcy.

Guaranteed Rate of Return

Some Single Premium Deferred Annuity contracts offer a guaranteed rate of return. This means that your money will grow at a set rate. That means you can predict how much your investment may grow.

Guaranteed Principal Protection

If Single Premium Deferred Annuity is held within a trust, your Single Premium Deferred Annuity can be guaranteed at maturity.

Single Premium Deferred Annuity Drawbacks 

There are a few potential drawbacks to Single Premium Deferred Annuities:

No Access to Funds Until Maturity

Unlike Single Premium Deferred Annuities, traditional annuities offer an income stream. Single Premium Deferred Annuity does not provide monthly payments until it matures.  If you withdraw money before maturity, Single Premium Deferred Annuity charges a penalty and taxes on your withdrawal.

Surrender Charges

Some Single Premium Deferred Annuity contracts have surrender charges that apply if the contract is cancelled before the maturity date. Be sure to understand how Single Premium Deferred Annuity works before you invest.

High Initial Investment

You may have to pay high Single Premium Deferred Annuity premiums in order to get Single Premium Deferred Annuities with good interest rates.

Conclusion 

If you are looking for a way to invest your money so it will grow over time, Single Premium Deferred Annuity is an attractive choice. SPDA offers a number of benefits, such as tax-deferred growth, creditor protection, and a guaranteed rate of return.  Single Premium Deferred Annuity also offers flexibility in the type of contract you choose. However, there are a few drawbacks, such as no income stream until maturity and high premiums.  Before deciding to invest, be sure to understand how Single Premium Deferred Annuity works. This can be a great way to save for your retirement.

A Single Premium Deferred Annuity, or SPDA, is an investment vehicle that allows you to defer taxes on your investment until you withdraw the money.
When you invest in a Single Premium Deferred Annuity, you pay a Single Premium, which is the amount you want to invest. The money you invest in SPDA grows tax-deferred for as long as it sits in your Single Premium Deferred Annuity account.
A Single Premium Deferred Annuity is a great way to invest your money so it will grow over time. SPDA offers tax-deferred growth, limited risk of principal loss, and protection from creditors. It is also flexible in the type of contract you choose.
Some of the benefits of Single Premium Deferred Annuity include tax-deferred growth, limited risk of principal loss, and creditor protection. Single Premium Deferred Annuity also offers flexibility in the type of contract you choose.
Yes, there are a few drawbacks to Single Premium Deferred Annuities. Single Premium Deferred Annuity does not offer an income stream until maturity, and Single Premium Deferred Annuity charges high premiums.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.