Qualified Annuities vs. Non-Qualified Annuities
Annuities can be used in tax-qualified retirement plans, such as IRAs, pension or profit sharing plans, 401(k) plans, 403(b) plans, and certain governmental plans. These annuities are called qualified annuities and are typically funded with pre-tax dollars. Some qualified annuities are purchased with after-tax dollars for use with Roth accounts, under which the annuity payments and other withdrawals are tax free if certain tax rules are satisfied. Annuities that are not used in qualified plans are called non-qualified annuities and are purchased by members of the general public with after-tax dollars.
An annuity used in a qualified plan can provide contract owners with the same insurance benefits offered by non-qualified annuities, such as guaranteed death benefits, guaranteed living benefits, and guaranteed income payments for life. It does not, however, provide any additional tax- deferred treatment of earnings—tax deferral is provided by the qualified plan itself.
Annuities used within qualified plans are subject to annual contribution limits. The government does not, however, limit the total annual amount of premium payments to non-qualified annuities. Insurance companies may impose maximum premium limits that are typically very high and do not affect most contract owners. Because of this feature, many people view non-qualified annuities as valuable personal retirement accounts to which they can contribute as much as they need for retirement.
If you are considering an annuity purchase, be sure to fill out our quote form to research suitable options available.