Understanding Qualified vs Non-Qualified Annuity

Qualified vs Non-Qualified Annuity – Knowing the distinction between the two could have a significant impact on your retirement investment.

Annuities come in many different forms. There are immediate or deferred annuities, both of which can have Fixed or Variable Rates. Furthermore, all annuities are either qualified or non-qualified for tax advantages.

This article will help you understand the difference between these two terms. 

Qualified vs Non-Qualified Annuity – What’s the Difference?

The government gives incentives for those approaching retirement to be financially prepared. As a result, annuities connected with a traditional retirement plan receive tax benefits that help grow your retirement income. A qualified annuity qualifies for this tax incentive. A non-qualified annuity does not.  

The difference between qualified vs non-qualified annuities is how you pay taxes on your investment.

Qualified Annuities

The tax advantage given to qualified annuities allows you to fund your annuity with pre-taxed dollars. Typically your premiums are automatically deducted from your paycheck pre-taxed and get invested into your annuity. This benefit allows your investment to grow and compound faster and give you more income in retirement.  

A qualified retirement annuity delays your tax obligation into the future until you begin taking income withdrawals. 

Non-Qualified Annuities

Non-qualified annuities are not attached to a qualifying retirement plan and therefore do not have additional tax benefits. You purchase one of these investments with post-taxed funds. As a result, the only taxes you pay when you begin taking income distributions are on the capital gain (growth) of your investment.


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Customizing Qualified & Non-Qualified Annuities

Here are the three main ways to customize your annuity investment.

How do you want to fund your annuity? 

Immediate annuities form through a single, one-time premium payment. As a result, all the benefits of the annuity are immediately available. You can choose to begin taking income payments right away or delay them into the future.

Deferred annuities form over time through a series of premium payments, making them much easier to budget for. Only after your last premium payment do the annuity benefit become available. 

How do you want to receive your income payments?  You can choose to receive payments monthly, quarterly, or yearly. If you do this strategically, you can save big on your future taxes. Our agents can help you customize your annuity to minimize your tax obligations.

What type of interest rates? Annuities have either fixed or variable rates interest rates.  

Fixed annuities have a fixed interest rate, which guarantees growth on your investment. These low-risk investments can fit into any retirement plan.

Variable annuities have fluctuating interest rates based on stock market performance. Variable annuities have the potential for higher yields when the market is up. However, market dips can result in zero growth or even a loss of principal.   

Finding Your Best Investment

As mentioned above, knowing the difference between a qualified vs non-qualified annuity can significantly impact your retirement savings.

Working with an independent insurance agent will give in your investment decisions. We’re here to answer your questions and to help you find the best annuity investment to meet your retirement goals. 

Our agents are not bound to any single carrier. Instead, we offer unbiased support and advice to help you maximize your retirement income. We’ll help you shop and compare annuity companies nationwide to find your best investment opportunities. 

Explore your options today. Fill out the form on your screen for a personalized illustration. 

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