Non qualified annuities special type of annuities bought with a specific amount of money which is then returned back to an annuitant over a certain period of time. Such annuities may be paid for over a certain period of time or in a large amount towards the retirement. A non qualified annuity may have monies initiating from funds like as followings:
- Mutual funds and investments which do not qualify as retirement savings accounts or IRAs
- Money market accounts or after-tax savings accounts
- Inheritance, also denoted as life insurance settlement proceeds
- Proceeds from sale of estates, a house or any other property
- CDs or certificates of deposits
- Any investment or money that has been subjected to state taxes and government
Annuities are normally taken as a type of earnings that start to pay out after the retirement. For that reason, annuity payments are typically subjected to the tax rules and regulations by both the state and federal government. Because of, a non qualified annuity is deposited by the money subjected to the taxes; taxes are not charged to the principal amount which is paid back to the annuity holder. Interest on a non qualified annuity is however is subjected to taxes.
On the contrary, qualified annuity is purchased with monies and investments qualified for tax-deferment and tax-exemption. Such funds basically originate from the retirement funds like IRAs and 401(k) plans. Because of, such funds are used to buy qualified annuities, are not subjected to the taxes prior to the annuity is bought. However, as per both state and federal government income tax rules, all payments from an annuity to annuitant are taxable.