A Non-Qualified Annuity: The Basics

December 13, 2022

An annuity is a contract for an insurance product that provides you with a reliable source of income. You receive a guaranteed amount of income based on the terms of the contract and the premium payment. Annuities are either paid in full and upfront or partial payments over time.

A Qualified or Non-Qualified Annuity: The Best Choice for You

Before you invest in such a fund, you need to decide if you want a qualified or non-qualified variety.

What Is a Qualified Annuity?

A qualified fund is one designed to meet IRS guidelines for tax deferment. That means any contributions to this fund are pre-tax, allowing the fund to grow tax-deferred. Your tax liability only applies at withdrawal, allowing you greater control over the taxes you incur. However, qualified funds have contribution limits, restricting how much money you can save.

What Is a Non-Qualified Annuity?

Unlike a qualified fund that you contribute to pre-tax, a non-qualified annuity is not tax-deferred. Contributions to a non-qualified annuity happen post-tax, so that you won’t be subject to tax on contributed funds at withdrawal time. These funds are free of contribution limits, so you can contribute as much as you wish.

Why Choose A Non-Qualified Fund?

Understanding the benefits of a non-qualified fund can help you see why you may want one as part of your financial plan. The basics of a non-qualified annuity are that these funds allow you to account for tax liabilities now instead of worrying about future tax bracket changes. You only pay taxes at withdrawal on the growth balance of the fund.

How Do You Choose?

When you want the right plan for your financial future, you must consider your present financial position and long-term goals. If you have an employer that offers qualified funds, you may want to consider contributing to both for long-term stability, but only if your budget allows it.

Why Should You Buy an Annuity?

Understanding the difference between qualified and non-qualified funds is a start. Recognizing the importance of annuities as a whole is just as important. Financial stability in your later years requires careful planning years beforehand. An annuity is a great way to ensure guaranteed income after you retire, making future budgeting easier.

About 1891 Financial Life

At 1891 Financial Life we don’t just sell policies, we offer possibilities. We pride ourselves on giving back to the communities that we serve by providing quality and comprehensive insurance solutions. We are a not-for-profit life insurance Society, which means the sales from these financial service products help fund member benefits along with social, educational, and volunteer programs designed to respond to community needs.

Our portfolio is extensive, ranging from various life insurance policies to our annuities to support your financial needs no matter what stage of life you’re in.