What Is the Difference Between Qualified & Non-Qualified Annuities?


Annuities are investment vehicles backed by various types of investments. They have many different labels for the same product. For instance, an annuity can be an immediate annuity, a fixed annuity, and a non-qualified or qualified annuity.


  • Although there are several different labels, most annuities fall under three categories: fixed, variable or indexed. The terms describe the type of funding used inside the annuity.


  • If you have money in a pension, IRA, 401(k) or 403(b), the money is qualified money. It simply means it's for retirement and you have special rules about removing it.


  • Money without the pension or IRA designation is non-qualified money. You don't have to wait to remove it until retirement in most cases, except for a non-qualified annuity.


  • If you have a qualified annuity in any plan but the Roth IRA, you must start to take money at least by 701/2. If you don't, there's a penalty. This isn't true of a non-qualified annuity or a qualified annuity in a Roth IRA.


  • Non-qualified annuities are not subject to limitations on the amount you can invest each year. Qualified annuities have limits based on the type of plan they fund.


  • If you invest in a qualified annuity, there are restrictions based on your income. For IRAs, if you earn over a maximum amount and have another pension you're ineligible to contribute. Most pensions are percentages of income. You can earn any amount and have a non-qualified annuity.

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