Legal Definitions - single-premium deferred annuity

A single-premium deferred annuity is a type of annuity where the annuitant pays a lump-sum premium to an insurance company in exchange for receiving a specified sum at a future date. The income earned on the investment is tax-free until it is withdrawn.

For example, John pays $100,000 to an insurance company for a single-premium deferred annuity. The insurance company invests the money and agrees to pay John $150,000 in 10 years. During those 10 years, the income earned on the investment is tax-free.

Single-premium deferred annuities are often used for retirement planning because they allow the annuitant to defer taxes on the investment income until retirement when they may be in a lower tax bracket.