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Qualified and Nonqualified Annuities

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Qualified and Nonqualified Annuities

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  1. Qualified and Nonqualified Annuities www.BeamaLife.com | 1-866-972-3262

  2. Qualified and Nonqualified Annuities • Qualified and Nonqualified Annuities • Annuities come in many different forms. There are immediate and deferred annuities, with both fixed and variable rates. However, whatever the type of annuity, all can be classified as either qualified or nonqualified annuities. And the distinction is easy. www.BeamaLife.com | 1-866-972-3262

  3. Qualified and Nonqualified Annuities • Qualified annuities are used in connection with tax-advantaged retirement plans, such as defined benefit pension plans, Section 403(b) retirement plans (TSAs), or IRAs. Premiums for qualified annuities are generally paid with pretax dollars, as are any investments purchased for use in a qualified retirement plan. www.BeamaLife.com | 1-866-972-3262

  4. Qualified and Nonqualified Annuities • By definition, any annuity not used to fund a tax-advantaged retirement plan or IRA is considered a nonqualified annuity. Contributions to nonqualified annuities are made with after-tax dollars--premiums are not deductible from gross income for income tax purposes. www.BeamaLife.com | 1-866-972-3262

  5. Qualified and Nonqualified Annuities • In essence, then, the products are the same. It is the placement in or out of a retirement plan (and the resulting tax treatment) that distinguishes one from the other. www.BeamaLife.com | 1-866-972-3262

  6. Qualified and Nonqualified Annuities • Qualified annuities • As noted, the cost of a qualified annuity is deductible to the individual or employer (and/or excludable from the income of the individual) at the time of contribution, as would be any tax-advantaged retirement plan investment. When an annuity is in a retirement plan, the rules of the plan govern all tax matters. www.BeamaLife.com | 1-866-972-3262

  7. Qualified and Nonqualified Annuities • Specifically, the special tax-deferral advantages of annuities, and the unique tax penalties and tax treatment of annuities at distribution, are superseded when used in a retirement plan by the tax rules governing all investments in such plans. It is for this reason that many financial advisors question the use of deferred annuities in retirement plans. www.BeamaLife.com | 1-866-972-3262

  8. Qualified and Nonqualified Annuities • Note: Although it is true that the tax-deferral advantage of annuities is redundant in a qualified plan, annuity products may offer other features, such as a guaranteed death benefit, that may make them a viable investment option for a portion of a qualified plan portfolio. www.BeamaLife.com | 1-866-972-3262

  9. Qualified and Nonqualified Annuities • Nonqualified annuities • The rules for nonqualified annuities are different in many respects, because these products are purchased with after-tax money. www.BeamaLife.com | 1-866-972-3262

  10. Qualified and Nonqualified Annuities • If the nonqualified annuity is partially or fully surrendered, the first dollars out are considered earnings, and all of the earnings are taxed at ordinary income rates. After all of the earnings have been distributed, the remaining portion that represents the original investment in the annuity is received tax free. www.BeamaLife.com | 1-866-972-3262

  11. Qualified and Nonqualified Annuities • If payments are taken in the form of an annuity payout (i.e., a distribution taken out over a predetermined period of time), a portion of each payment is considered a return of the original investment and is excludable from gross income, and a portion is considered earnings and taxed at ordinary income tax rates. www.BeamaLife.com | 1-866-972-3262

  12. Qualified and Nonqualified Annuities • The percentages that are earnings and return of investment are based on the type of payout at the age of the recipient. Note, too, that distributions taken before age 59½ are subject to a 10 percent early withdrawal penalty tax on earnings. www.BeamaLife.com | 1-866-972-3262

  13. Qualified and Nonqualified Annuities • Note: Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk, including the possibility of loss of principal. Variable annuities are sold by prospectus, which contains information about the variable annuity, including a description of applicable fees and charges. www.BeamaLife.com | 1-866-972-3262

  14. Qualified and Nonqualified Annuities • These include, but are not limited to, mortality and expense risk charges, administrative fees, and charges for optional benefits and riders. The prospectus can be obtained from the insurance company offering the variable annuity or from your financial professional. Read it carefully before you invest. www.BeamaLife.com | 1-866-972-3262

  15. Qualified and Nonqualified Annuities www.BeamaLife.com | 1-866-972-3262

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