What is the Difference Between Qualified and Nonqualified Annuities?

No matter what stage you are at, retirement planning always seems to be an alphabet soup filled with all kinds of “similar but different” options: 401(k)s, Roth IRAs, and so on. The labels, as defined by the Internal Revenue Service (IRS), often overlap causing even more confusion. When you’re trying to set up an investment portfolio that guarantees your financial future after your last day of work, every little bit of clarity helps. With that in mind, here are three key differences between qualified and nonqualified annuities:
1. Tax Deferment
The primary means by which to distinguish your annuity is whether contributions are made before or after taxes are pulled out of your paycheck. For the most part, if pre-tax dollars are used to fund the account, such as in an employer-created 401(k), the IRS classifies it as “qualified” and will tax disbursements in the future. On the other hand, when you set aside part of your net earnings into an investment vehicle – a money market account or whole life insurance policy with cash value, for instance – you are participating in a “nonqualified” agreement in which taxes have already been paid.
2. Investment and Income Restrictions
Simply put, the IRS sets limits on the amount of qualified annuity contributions which can be made every year. Since 2009, the maximum amount that can be set aside in a 401(k) is $16,500 with an additional “catch-up” amount of $5,500 available to people over 50. Nonqualified plans, because they are made out of after-tax monies, have no ceilings – you can add as much as you can afford to your account, so long as the company you’re doing business with permits it (and most do).
In addition, there are income restrictions on certain types of qualified annuities: if you would like to fund a Roth IRA, you’ll have to earn less than $105,000. Though you may not be affected early in your career, as your earnings grow you’ll be exempt from contributing to an account which might allow another $5,000 investment for your retirement portfolio.
3. Mandatory Withdrawal Dates
Both types of annuities are subject to a 10% penalty if you withdraw from them earlier than six months before your 60th birthday, but there is no point at which you will be required to accept payments on your nonqualified account unless you agree to it. (Some insurance companies, as an example, might require them to begin at age 85.) However, if you have a qualified annuity, you’ll be required to receive the first disbursement no later than six months after your 70th birthday. The IRS uses life expectancy estimates to ensure monies are distributed – and taxed, since they haven’t been yet – to appropriately fund the golden years of retirees.
With all the options available, it can be tough to discern the best course. Be sure to consult with a trusted financial advisor before making any decisions, as they will best understand your goals and current portfolio make-up.

What are the different annuity investment options?

What are the different annuity investment options?
Fixed Annuities: If you are looking for a guaranteed rate of return, may be in one to ten years, fixed annuities can be the solution. Fixed annuities are invested primarily in high-grade corporate bonds and government securities.
Market Value Adjustment: The annuity is somewhat similar to the Guaranteed Return Annuity. The only difference is that there is no guarantee of funds if rates are high and then you need to end or surrender your contract.
Guaranteed Return: This is a fixed annuity that guarantees almost 100% return of your investment. The interest rate does not vary and you can surrender your contract if your initial investment gets depleted due to market variations.
Variable Annuities: If you want to invest in specific funds or into sub-accounts, you can opt for variable annuities. These sub-accounts vary according to the prevalent market rate.
For more information, visit the annuity segment of http://www.sec.gov/answers
Conservative Type: This type is for money market, guaranteed fixed accounts and government bonds.
Aggressive Type:
This is for small capital markets funds, mid capital markets funds, large capital markets funds, capital appreciation, aggressive growth, emerging markets funds and growth markets funds.
Special Type:
Special type variable annuities are actually living benefit annuities.
Bonus Annuities:
This offers you a bonus option of 3 to 5%. With bonus annuities, it is easy to take out your money. All the broker needs to do is agree and reduce his commission and you receive the bonus in return. This annuity will take at least seven years to mature. But, this annuity plan has penalties for early withdrawal.
Deferred Annuities:
In a deferred annuity, you will receive payments starting at retirement. You can invest either in a lump sum or make payments over a specified length of time. Also, you can invest in either fixed or variable type accounts. These funds grow tax-deferred till the time you start receiving funds.
Immediate Annuities:
You will start receiving payments immediately upon investing in the annuity. This is the perfect choice for you if you need immediate income from an annuity. You have the options of a fixed payment that does not change or a variable payment that is based on the annuity’s performance.

Find all the different types of Annuity Investment Options here:
Fixed Annuities: If you are looking for a guaranteed rate of return, may be in one to ten years, fixed annuities can be the solution. Fixed annuities are invested primarily in high-grade corporate bonds and government securities.
Market Value Adjustment: The annuity is somewhat similar to the Guaranteed Return Annuity. The only difference is that there is no guarantee of funds if rates are high and then you need to end or surrender your contract.
Guaranteed Return: This is a fixed annuity that guarantees almost 100% return of your investment. The interest rate does not vary and you can surrender your contract if your initial investment gets depleted due to market variations.
Variable Annuities: If you want to invest in specific funds or into sub-accounts, you can opt for variable annuities. These sub-accounts vary according to the prevalent market rate.
For more information, visit the annuity segment of http://www.sec.gov/answers
Conservative Type: This type is for money market, guaranteed fixed accounts and government bonds.
Aggressive Type:
This is for small capital markets funds, mid capital markets funds, large capital markets funds, capital appreciation, aggressive growth, emerging markets funds and growth markets funds.
Special Type:
Special type variable annuities are actually living benefit annuities.
Bonus Annuities:
This offers you a bonus option of 3 to 5%. With bonus annuities, it is easy to take out your money. All the broker needs to do is agree and reduce his commission and you receive the bonus in return. This annuity will take at least seven years to mature. But, this annuity plan has penalties for early withdrawal.
Deferred Annuities:
In a deferred annuity, you will receive payments starting at retirement. You can invest either in a lump sum or make payments over a specified length of time. Also, you can invest in either fixed or variable type accounts. These funds grow tax-deferred till the time you start receiving funds.
Immediate Annuities:
You will start receiving payments immediately upon investing in the annuity. This is the perfect choice for you if you need immediate income from an annuity. You have the options of a fixed payment that does not change or a variable payment that is based on the annuity’s performance.
So just do your Retirement Planning and get the benefits of Annuity Investment Options.

What are the benefits from an annuity?

Guaranteed Income and Flexibility of Withdrawal: An annuity is the only investment plan which can provide you a guaranteed lifetime income stream. If you wish you can also withdraw the whole amount in a lump sum or withdraw only a small sum as and when you need.
You may even wish to let the money grow tax deferred for you to withdraw in the event of an emergency or leave it as a legacy for your heir. No probate is necessary if you clearly specify your beneficiaries. This makes it easier for them to receive the payment.
Flexibility of Contributions: Unlike the 401(k) plans or IRAs, the Federal law does not impose any limit on the amount of money you are allowed to invest in your annuities annually. Furthermore, you also have the choice to pay in installments or in one lump sum.
Deferred Taxes: Unlike most other investments, by investing in annuities, you can actually save on your earnings. During the accumulation phase, the contributions you make towards your annuity are invested and all earnings grow tax deferred during that period. When you start withdrawing your money, these earnings are treated and taxed as ordinary income only. This means you actually save on your investment earnings.
Bonus Income: Sometimes you are offered a bonus, like an additional bonus, which helps to increase your annuity’s principal.
What happens if you withdraw funds early?
An annuity is a long-term retirement plan and there are charges or fees if you take your money out before a specified period of time. But, there are many fixed annuities that allow you to take 10% out of your money without any charge for it.
What are the taxes on an annuity?
Earnings from your annuity grow on a tax-deferred basis and you do not have to pay any taxes on your annuity earnings until you withdraw funds.

Apart from tax advantages, other Annuity Benefits:

Guaranteed Income and Flexibility of Withdrawal: An annuity is the only investment plan which can provide you a guaranteed lifetime income stream. If you wish you can also withdraw the whole amount in a lump sum or withdraw only a small sum as and when you need.

You may even wish to let the money grow tax deferred for you to withdraw in the event of an emergency or leave it as a legacy for your heir. No probate is necessary if you clearly specify your beneficiaries. This makes it easier for them to receive the payment.

Flexibility of Contributions: Unlike the 401(k) plans or IRAs, the Federal law does not impose any limit on the amount of money you are allowed to invest in your annuities annually. Furthermore, you also have the choice to pay in installments or in one lump sum.

Deferred Taxes: Unlike most other investments, by investing in annuities, you can actually save on your earnings. During the accumulation phase, the contributions you make towards your annuity are invested and all earnings grow tax deferred during that period. When you start withdrawing your money, these earnings are treated and taxed as ordinary income only. This means you actually save on your investment earnings.

Bonus Income: Sometimes you are offered a bonus, like an additional bonus, which helps to increase your annuity’s principal.

After Effects of Withdrawing Funds Early?

An annuity is a long-term retirement plan and there are charges or fees if you take your money out before a specified period of time. But, there are many fixed annuities that allow you to take 10% out of your money without any charge for it.

Taxes On An Annuity

Earnings from your annuity grow on a tax-deferred basis and you do not have to pay any taxes on your annuity earnings until you withdraw funds. With best of the Retirement Planning you can have so many benefits.