A qualified annuity is funded with pre-tax dollars (from a 401(k), IRA, or other qualified retirement plan). Withdrawals are fully taxable. A non-qualified annuity is funded with after-tax dollars. Only the earnings are taxable upon withdrawal — the principal is not taxed again.
Key Points
- Qualified annuity: funded with pre-tax dollars (401k, IRA)
- Qualified annuity withdrawals: fully taxable
- Non-qualified annuity: funded with after-tax dollars
- Non-qualified annuity withdrawals: only earnings are taxable
- An independent agent can help you understand the tax implications