Single-Premium Deferred Annuity (SPDA)

Definition and Meaning

Single Premium Deferred Annuity (SPDA) is a type of annuity contract that is recognized with a solitary lump-sum payment by the owner. The annuity then develops on a tax-deferred basis up to annuitization. It can be either fixed or variable, and the allocations are merely taxed when you take them. There are no investment limits regarding how much you wish to invest in an SPDA. It differs from instantaneous contracts in that they raise tax-deferred for a period of interval before annuitization. They also vary from flexible superior contracts where the investor makes numerous expenses in the contract over a period of interval while the assets nurture.

Single-Premium Deferred Annuity v/s Immediate Annuity

Annuities are basically contracts, which individuals come across with an insurance company in which the insurer decides to provide a stream of earnings in exchange for a lump-sum or a sequence of cash payments. Immediate annuities can be planned to pay out a recognized stream of income monthly or annually. "Period-certain" annuities pay out the revenue stream for a fixed period of time while "life-only" annuities pay out the income stream till the annuitant (not necessarily the owner) expires. "Joint and survivor" annuities pay out until the second of two individuals dies. They are regularly designed to deliver for the retirement income security of wedded couples.

The instruments can start disbursements instantly, where they are called "immediate annuities," or they can initiate payments at some point in the future, such as at retirement. These are termed as "deferred annuities." Deferred annuities can be stationary which means they pay a certain interest rate for the entire lifetime of the annuity or they can be variable. Variable annuities permit the owner to direct and uninterrupted funding to one or more sub-accounts, each with different investments. There is more threat of variable annuities, and it is expected to lose money on them. But there is also a greater opportunity for returns.

Taxation of Deferred Annuity

The contributions to delayed annuities are not tax-deductible, unless you hold the annuity in tax-deferred savings account. The incomes on annuities grow tax-deferred, however, and you can trade back and forth in the middle of sub-accounts without compensating capital gains taxes. You can even shift between annuities tax-free, using a Section 1035 exchange.