Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent Daniel Walker

UPDATED: Apr 28, 2022

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A single premium deferred annuity (SPDA) is an investment in an annuity that requires a single large premium that collects interest for a number of years before you can collect on that investment without penalty.

An SPDA should not be confused with a SPIA (single premium immediate annuity), which provides you with an immediate benefit to your investment. Nor should it be confused with standard 401K programs or other accounts that have users make multiple small deposits.

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The premise of a SPDA is very similar to a deferred annuity that has a multi-premium option with the exception of the type of premium that you pay. A SPDA can only be paid into once at the time of purchase, and every insurance company has a limit on how little you can invest in a SPDA.

Typically, this amount is $40,000, but it can vary from company to company and can be as high as $100,000, $400,000, and so on.

You can invest in either a fixed SPDA or a variable SPDA:

  • Fixed SPDA-The benefit of a fixed SPDA is that you are guaranteed a certain income stream every year as part of your investment
  • Variable SPDA- The benefit of a variable annuity is that if you choose your investments well, you can increase your investment return to a much higher rate than a fixed annuity. It does come with a higher degree of risk, especially for the novice investor. It all depends on your financial goals.

There is, of course, a much higher risk as well and you aren’t guaranteed a certain amount of money from your investment with a variable SDPA like you are with a fixed SPDA.

What are the benefits of a single premium deferred annuity (SPDA)?

One of the biggest benefits to a SPDA is that there is no limit as to how much money you can invest into your single premium deferred annuity. If you invested in retirement products like an IRA or a 401K, for example, and that money grew exponentially for you, you can roll it over into an SPDA without any concern about investment limits.

If you invest in other low-risk investments, such as an IRA or a 401K, you will find that you are limited by how much you can contribute. A 401K, for example, has a maximum contribution level of $16,500 annually. An IRA has a maximum contribution level of $5,000 ($6,500 if you are over 50). With a SPDA you can contribute a million dollars if you have it. This is why SPDAs are most commonly used as a rollover option with the help of experienced financial advisors.

You will also find that if you choose a fixed SPDA you are guaranteed a specific interest rate on your investment. This is appealing to a lot of people because there aren’t many guaranteed investment opportunities that ensure that you get a return on your investment. What’s more, the interest rate will be higher than a savings account or any bonds or CDs that you could purchase, making this a higher-yield investment.

There is some flexibility in how you get your SPDA once your contract is up. You can choose a monthly payment plan that allows you to receive a monthly income or you can choose a one-time payment, getting all your money at once. You only pay taxes on what you receive, so your annual tax bill will be lower if you choose a monthly annuity payment. Like other annuity products, you could theoretically look at current interest rates and decide if you want to roll it over again. Make sure you’re checking out all your options and making a decision based on your circumstance along with the rates. If you may need the money in 5 years, you don’t want an SPDA that locks your money in for a longer time period like 10 years. But if you have time to wait, you might not want to give up an SPDA with a better interest rate.

In addition, the tax benefit to a SPDA is that you don’t pay any taxes on the money while it is in your SPDA. If you are rolling money over from another investment, then your full contribution to the SPDA will be taxable after you start collecting from your investment. If you use money that has been taxed such as money from savings, then only your gains will be taxed once you start collecting.

The benefit to paying taxes only when you withdraw money from your SPDA is that your account gets the opportunity to grow not only on your capital but on the interest as well. This means larger annual growth and a larger annuity payment when your account is finally accessible.

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What are the downsides of a single premium deferred annuity (SPDA)?

There are downsides to SPDAs:

  • Limits: One major downside of a SPDA is that you cannot contribute more money to it if you find yourself with more money to invest. So while you can roll over a large amount from an IRA, 401K, etc., you cannot add to it little by little. A single premium means that you only get one opportunity to invest in your annuity. If you want to invest more money then you will have to open another annuity account that may not have the same interest rate, accumulation phase, or other terms.
  • Fees: There are annuity fees for creating any kind of annuity account, which means that you will have to pay the initial fees all over again if you choose to start a second annuity. This is something to keep in mind if you are considering a single premium annuity versus a flexible annuity option. While there may be a small annual fee for choosing a flexible annuity option, it may be worth it to you if it gives you the opportunity to add more money to your investment.
  • Rate of Return: You don’t get a higher rate of return on your investment with a single premium deferred annuity. The interest rates are the same whether you choose flexible premiums or a single premium. However, a larger initial investment means that you are drawing more interest now rather than over time.

It is important to note, however, that a flexible premium plan has no limit on how much you can invest, just like the SPDA. This means that with a flexible premium, you could make that very large initial investment and start collecting your interest while still having the opportunity to invest more money over time if you choose.

  • Accessing funds: Another disadvantage to investing in a SPDA, and annuities in general, is that you cannot access your money without heavy penalties and fines. You will sign a contract with the insurance company you purchase your SPDA agreeing to leave your money in the annuity for a specified period of time. If you break that contract then you agree to pay the fees, which will be withdrawn directly from your investment, to the insurance company.
  • Taxes: The IRS also gets their piece of the pie if you withdraw before you are 59 and 1/2 years old. In addition to the taxes, you will have to pay on your gains from your investment, or all of your investment if you rolled over an IRA or 401K. You will also have to pay a 10% penalty tax.

While it may seem like there are a lot of negatives associated with an SPDA, the truth is that many of the penalties that you pay are the same with any type of investment, with the exception of directly investing in stocks, which can involve higher risk.

Who should invest in a single premium deferred annuity (SPDA)?

An SPDA investment isn’t for everyone. The single premium immediate annuity(SPIA) also exists. You need to have a significant amount of money to invest or you won’t be able to invest in these types of annuity. If you have a smaller amount of money, consider a flexible premium deferred annuity instead.

If you are over the age of 40 and you haven’t saved anything for retirement, then this may be a viable option for you. Because you are contributing such a large amount of money to your annuity, your money will grow quickly, providing you with an excellent investment.

If you are over the age of 60, however, then you might want to consider an SPIA (single premium immediate annuity) instead. You still have to contribute a large amount of money to the SPIA, but the investment pays out immediately and for the rest of your life. This option is for those ready to retire but who didn’t invest in any retirement plans.

No matter what type of annuity you are considering, you need to start your investment by ensuring you pay the least amount in fees and get the highest rate of return on your investment. By using the free quote tool, you can compare fees and investment levels between insurance companies to determine where your money is going to benefit you the most.