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.
- Photo Credit Image by Flickr.com, courtesy of Juhan Sonin
What Is a Non-Qualified Annuity?
An annuity is a contract between an annuitant and an insurance company. The annuitant makes an initial investment, or ongoing contributions over...
What is Tax Qualified Money?
There are two different types of retirement accounts--qualified and non-qualified. Knowing the differences between the two can help when evaluating sound retirement...
The Taxation of a Non-Qualified Annuity
When saving money for your retirement, you have several choices as to what financial products to use. One option is an annuity....
How to Transfer an Annuity
Annuities are tax-deferred investments used for supplemental retirement plans. Annuity funds can be qualified (IRA, 401k) or non-qualified. The only difference between...
Qualified Vs. Non-qualified Annuities
Investors purchase qualified annuity contracts with pre-tax earnings whereas non-qualified annuity contracts are bought with after-tax earnings. Funds inside an annuity contract...
What Does "Non-Qualified Money" Mean?
The terms "qualified" and "non-qualified" money are usually used in conjunction with retirement plan assets. Understanding what makes money "qualified" leaves all...
Tax Consequences on Non-Qualified Variable Annuities
Non-qualified variable annuities have some very important tax consequences that you should familiarize yourself with. Learn about tax consequences on non-qualified variable...