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What is a Non-Qualified Annuity?

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By    |   Monday, 04 May 2015 09:56 AM

Annuities offer safe ways for retirement planning and also help to reduce your taxable income. The IRS recognizes two kinds of annuities, a qualified and non-qualified annuity. The difference between the two is in how the contributions and withdrawals are taxed.

Each person has different options when considering federally approved retirement plans that impact the way the funds or withdrawals are taxed. The decision is usually based on your financial situation and conditions you anticipate during retirement.

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According to Ameriprise Financial, with a non-qualified annuity
, the contributions you make into the account are with after-tax dollars or your money after paying taxes. A qualified annuity means your contributions are made with pre-tax dollars, money that you contribute before paying taxes to reduce your taxable income,

Since you pay into the non-qualified annuity with after-tax dollars, only the earnings on the annuity are taxable as income when you withdraw the money.

You already paid the taxes on the contributions. The earnings grow tax-deferred until you begin withdrawals. The entire amount is taxable when withdrawing from a qualified annuity.

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The IRS does not limit the amount you can pay into a non-qualified annuity each year, but it puts a cap on the amount paid into a qualified annuity. Using a non-qualified annuity allows you to put more money into your retirement account than you could in other retirement plans for tax purposes, reports The Annuity News. This is helpful if you got a late start in putting aside money for retirement savings.

There is no set age as to when you must withdraw money from a non-qualified annuity. You can keep contributing to the annuity and not withdraw as long as you like.

Upon your death, your spouse may be able to continue the annuity with tax-deferred earnings until withdrawal. However, the annuity remains part of your estate for tax purposes.

Discuss the options of annuities with your financial advisor and an annuity agent to determine what is the best annuity for your concerns.

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Annuities offer safe ways for retirement planning and also help to reduce your taxable income. The IRS recognizes two kinds of annuities, a qualified and non-qualified annuity. The difference between the two is in how the contributions and withdrawals are taxed.
what is a non qualified annuity
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2015-56-04
Monday, 04 May 2015 09:56 AM
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