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 ?
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.
A nonqualified annuity is purchased with after tax dollars and is not part of an employer-based qualified retirement plan or IRA).
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.
In the LIMRA survey, 77% of nonqualified annuity buyers said tax deferral is an important feature of the product.
The idea was that a customer would get no benefit from the tax breaks afforded a nonqualified annuity if he used it for qualified funds.
Starting last year, withdrawals taken from a nonqualified annuity contract to cover long-term care expenses are income-tax-free if handled according to IRS protocol, McNeely points out.
An existing nonqualified annuity or a new non-qualified annuity purchased with money from a CD or other low-performing asset can be used to generate tax-free money to pay the premium on long-term care insurance (LTCI).
The Retirement Security Needs Lifetime Pay Act and the Retirement Security for Life Act would provide a 50 percent tax exclusion on the annual income from a nonqualified annuity, which would encourage people to convert some of their savings or assets to annuities for a lifetime paycheck.