Qualified versus Nonqualified Annuities – Which Suits You?

Qualified deferred annuities carry significantly different contribution, withdrawal, and tax regulations compared to non-qualified deferred annuities. Know these differences to choose which type you should use. Annuity Nonqualified Qualified Tax-deferred earnings Yes Yes Early withdrawal penalty (10% IRS) Yes Yes Contribute with pre-tax dollars No Yes Contribution based on ‘work’ earnings No yes Yearly contribution limits No Yes Accept direct rollover from qualified plan No Yes Withdrawal requirements No, or much later MRD at 70½ An deferred annuity is a contract you make with an insurance company to grow your principal and then if you choose, to receive as series of payments–usually for life –in return for your ‘premium’ contributions. You can purchase either a fixed deferred annuity or a variable deferred annuity. An deferred annuity has two phases: accumulation and annuitization. During the accumulation phase, you contribute premiums that are invested for growth. You receive your series of payments during the annuitization phase (you may also choose to make your withdraw in a lump sum). Nonqualified Deferred Annuities Earnings within a deferred annuity–like those of a life insurance contract–are not taxed as long as they stay in the deferred annuity.  Taxes on these earnings are deferred until they are [...]

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