:: Free article content
Authors: Maximum article exposure. Publishers: Reprintable article content.
Featured Articles
Recently Added Articles
Most Viewed Articles
Article Comments
Advanced Article Search
Submit Article
Check Article Status
Author TOS
RSS Article Feeds
Terms of Service

The difference between "qualified" and "non-qualified" annuities
Home Finance Trading / Investing
By: Thomas Harper Email Article
Word Count: 783 Digg it | it | Google it | StumbleUpon it


The IRS looks at funds in terms of qualified or non-qualified, in order to determine that money’s tax-ability. If money is non-qualified, that means it is not part of a tax-deferred account.

Examples of tax deferred account are traditional or Roth individual retirement account (IRA), a simplified employee pension (SEP) or an employer sponsored defined benefit plan such as a 401(k). Taxes have already been paid on non-qualified money. Examples of non-qualified accounts are simple savings, money market accounts, or inheritance.

Qualified Funds

Qualified Funds are moneys eligible to be placed in tax deferred wealth accumulation vehicle that is approved by the IRS. It is important to note that the money placed in one of these accounts must be earned income. One of the major benefits of annuities is that the money that qualified money that is placed in an annuity is often subject to lower tax liability due to the fact that that it is tax deductible. The distribution of income and the taxes paid are deferred until a later point in time, most often after the owner of the annuity has retired.

Qualified accounts do not allow you to take your money until you are age 59 ½. If the account holder does so, it is standard procedure that the IRS will take 10% of the account’s value, and the account is still subject to normal taxation after that point (as yearly income).

One drawback for investors is that income taxes are typically higher than capital gain taxes. The IRS views all income taken from qualified accounts as income for that year, and thus, is taxed at a higher percentage than it would be as a capital gain.

Non-Qualified Annuities: Immediate and Deferred Funding for a non-qualifies immediate annuity typically comes from the rollover of a single premium (one-time payment). Since that money has already been taxed, the only portion of the policy that is eligible for taxation is the wealth accumulation on it. Therefore, this option makes the most sense for a recent retiree who is looking to immediately take income on their policy.

Non-Qualified variable annuities function in a much different way. The money that is invested in the policy is placed specific stocks, bonds, etc. that are chosen by the annuitant. The gains do not incur any taxation until that income is taken by the policy holder. This also differs from other financial investments that are purchased with after tax dollars. For example, the interest earned on a savings or money market account funded with after tax dollars is not tax-deferred. The biggest advantage of a tax-deferred account is the fact that potential accumulation will be at its maximum due to the fact that the policy is not incurring income taxes. The second benefit is that the annuitant will most likely be in a lower tax bracket once they retire and start taking income, so the policy will be taxed at a lower percentage.

Purchasing a non-qualified variable annuity can also provide an additional retirement savings advantage for an investor who has already contributed the maximum dollar amount allowed to a qualified plan. The income on variable annuities is susceptible to market fluctuation, though, so there is risk involved. A client looking for a guaranteed monthly stream is better off purchasing a non-qualified immediate annuity. There is not a limit on the amount of non-qualified money that can be placed in an annuity or the amount of annuities that can be purchased. It is important to be advised that annuities are not considered to be a "liquid" investment, so the purchase should be made with money you are comfortable without, at least in the short term.

Page 1 of 2 :: First | Last :: Prev | 1 2 | Next

Please visit for more information on Fixed Annuities.

Article Source:

This article has been viewed 633 times.

Rate Article
Rating: 0 / 5 stars - 0 vote(s).

Article Comments
There are no comments for this article.

Leave A Reply
 Your Name
 Your Email Address [will not be published]
 Your Website [optional]
 What is nine + one? [tell us you're human]
Notify me of followup comments via email

Related Articles

Copyright © 2020 by All rights reserved.

Terms of Service | Privacy Policy | Contact Us | Submit Article | Editorial