Business Glossary

tax-deferred investment similar to an Individual Retirement Account without many of the IRA restrictions. An investor makes a lump-sum payment to an insurance company or mutual fund selling the annuity. That lump sum can be invested in either a fixed-return instrument like a CD or a variable-return portfolio that can be switched among stocks, bonds, and money-market accounts. Proceeds are taxed only when distributions are taken. In contrast to an IRA, there is no limit to the amount that may be invested in an SPDA. Like the IRA, the tax penalty for withdrawals before age 59½ is 10%.