Qualified Vs. Non-Qualified Annuities Contracts: What’s The Difference?

​Are you confused about the differences between a qualified and non-qualified annuity contract? The difference between the two is a common question that many people have. There are quite a few differences between these two types of contracts. Here’s a short overview of the two types of annuities to help you understand them better.

What Is Qualified Annuity
If you are saving for retirement, a qualified annuity is the best form of retirement savings available. It can be accessed through an IRA or 401(k) and allows investors to save for retirement, so it’s great for retirees and those who want to start saving for their future. Contributions to qualified annuities are deducted from an investor's gross earnings and, along with investments, grow tax-free. 

You can take advantage of the same tax-free savings account without having to pay taxes on it as long as you make no withdrawals. The IRS limits the amount of money you can invest in an account or total annual investment in a mutual fund.

What Is Non-Qualified Annuity
A non-qualified annuity is a contract that pays a fixed amount of money from an investment account after a specified period but does not have to have been qualified as a taxable retirement plan. No taxes are levied on the principal of a non-qualified annuity. Income tax is only levied on the earnings and interest.

If you are in the market for an annuity, this strategy will work in your favor! For people who have a long life expectancy, this strategy will help you diversify your income. 

More so, nonqualified annuities offer a great way to save for your retirement. It is a tax-financed investment that grows income-tax-free and does not carry any initial income tax deductions.

To sum up, annuities are allowed to grow tax-deferred. If you own an annuity, you can earn great gains on your investments, which can be tax-free for many years. However, on the other hand, if you choose to purchase an annuity that is not qualified or non-qualified, it may be subject to taxes on your earnings.

At the Medicare Supplement Store, we put our clients first by offering them policies that they can afford. Having insurance is a necessity nowadays, and we’re here to help you out. Learn more about our products and services by calling our agency at (732) 252-8828. You can also request a free quote by CLICKING HERE.