Nonqualified annuity

Nonqualified Plan

An annuity or pension plan that one buys individually rather than through an employer. Nonqualified plans are not subject to the same restrictions as qualified plans. As a result, withdrawal penalties are smaller or non-existent, and one may continue to make contributions to a more advanced age (sometime until the annuitant is over 80). In the United States, specific restrictions on nonqualified plans are set at the state level. The IRS does not regulate them; as a result, contributions are not tax-deductible, but earnings still are.

Nonqualified annuity.

An annuity you buy on your own, rather than through a qualified employer sponsored retirement plan or individual retirement arrangement, is a non-qualified annuity.

Nonqualified annuities aren't governed by the federal rules that apply to qualified contracts, such as annual contribution caps and mandatory withdrawals after you turn 70 1/2.

While there may be a 10% tax penalty for withdrawals before you turn 59 1/2, you can generally put up to $1 million in an annuity and postpone withdrawals until you're 75 or 80 or older. Those limits are set by the state where you purchase the contract or by the annuity company.

In other ways, though, qualified and nonqualified annuities are alike. You can choose between fixed or variable contracts, and the annuity can be either deferred or immediate.

References in periodicals archive ?
Further, income from tax-preferred financial products--such as annuity payments received from a nonqualified annuity or loans taken from a whole life insurance productI!--will not increase a client's MAGI for Medicare means testing purposes.
This distribution method essentially treats the nonqualified annuity death benefit as an inherited IRA (i.e., required to take Table I RMDs, with the balance growing tax-deferred during this individual's lifetime).
The rules in IRC Section 72 govern the income taxation of all amounts received under nonqualified annuity contracts.(Nonqualified annuities are annuities that are not held within a "qualified" retirement plan or an IRA.) IRC Section 72 also covers the tax treatment of policy dividends and forms of premium returns.
Conversely, a nonqualified annuity contract that has been annuitized produces distributions "taken as an annuity." This means only a portion of each periodic distribution is characterized and taxed as ordinary income, with the balance treated as a return of the after-tax premium contribution.
"If they have a nonqualified annuity, there is no good safe place to put it right now except a fixed indexed annuity, which gives a good rate of growth because the banks aren't paying anything.
Notwithstanding, the IRS has determined that the receipt of a check under a nonqualified annuity contract and endorsement of the check to a second company as consideration for a second annuity contract is treated as a taxable distribution rather than as a tax-free exchange under IRC Section 1035.
Other provisions in the budget that seek to raise revenues by taxing the insurance industry would modify the dividends-received deduction for variable annuities and variable life insurance, which would raise $4.3 billion over 10 years; and permit partial annuitization of a nonqualified annuity contract.
This chart refers to a nonqualified annuity, which is purchased with after-tax dollars.
Nonqualified Annuity. A "qualified" annuity is one that is used as part of a qualified retirement plan that complies with the provisions of Code section 401(a).
* Flora (age 61) received annuity distributions of $22,000 from a nonqualified annuity. At the beginning of the year, the annuity had a value of $300,000 and an after-tax basis of $100,000.
Although [section] 403(c) of the Code provides that premiums paid by an employer for a nonqualified annuity contract is includible in the gross income of an employee in accordance with [section] 83 of the Code, it appears that [section] 404(a)(5) of the Code may govern the deduction for the premiums paid for nonqualified annuity plans, instead of [section] 83(h), although this issue is not entirely free from doubt.
The investment-only variable annuity (IOVA) is a type of variable annuity that is generally attractive because of its lower price tag and unique investment opportunities--paired with the traditional tax-deferral offered by a nonqualified annuity product.