What Is Qualified vs Non-Qualified Annuity?

Why it matters

With a qualified annuity, contributions may be pre-tax and withdrawals are generally taxed as income, and required minimum distributions can apply. With a non-qualified annuity, only the earnings are taxed when withdrawn, and no required minimum distributions apply during the owner's life. An annuity inside an IRA gets no extra tax deferral because the IRA already defers tax. Rules are set by the IRS and differ by situation, so consult a tax professional.

Source: investor.gov

Related terms

Annuity: An annuity is a contract with an insurance company in which you pay a lump sum or a series of payments. In return, the insurer agrees to make payments to you, either right away or at a future date.
Deferred Annuity: A deferred annuity is an annuity contract that delays payments until a future date chosen by the owner. Until then, the money can grow during an accumulation phase, tax deferred.
Accumulation Phase: The accumulation phase is the period in a deferred annuity when the owner adds money and the value grows, before income payments begin. It ends when the owner takes withdrawals or starts annuity payments.
Fixed Annuity: A fixed annuity is an insurance contract that earns a stated interest rate set by the insurer. The rate is guaranteed for a period, and the insurer promises a minimum interest rate for the life of the contract.
Annuitization: Annuitization is the process of converting an annuity's value into a stream of regular income payments. Payments may last for life or for a set number of years, depending on the option chosen.

All 241 terms

Why it matters

Start your climb.