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Simple English definitions for legal terms
single-premium deferred annuity
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A quick definition of single-premium deferred annuity:
A single-premium deferred annuity is an agreement where someone pays a lump sum of money to an insurance or investment company in exchange for receiving a larger sum of money at a later date. The money earned on the investment is not taxed until it is taken out. It's like putting money in a piggy bank and getting more money back later.A more thorough explanation:
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 The income earned on the investment is tax-free until it is withdrawn.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.