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Non-Qualified Annuities:
Saving Without Limits

Tax-Deferred Retirement Saving1

When saving for your later years, non-qualified annuities offer you the potential for tax-deferred earnings and a steady flow of income after you retire.

Pre-tax or After-tax?

The term “non-qualified” hints that there is another type of annuity, called “qualified.” So what are the differences? There are a few, as well as some similarities.

Qualified is just IRS language for funding with pre-tax dollars, meaning the contribution itself could qualify for a tax deduction, lowering taxable income. When you take a distribution from a qualified annuity, the entire distribution amount (contributions and earnings) is subject to ordinary income taxes.

A non-qualified annuity is funded with after-tax dollars, meaning you have already paid taxes on the money before it goes into the annuity. When you take money out, only the earnings are taxable as ordinary income.

Plus, you can purchase a non-qualified annuity regardless of whether or not you are covered under a retirement plan at work or if you have a Traditional IRA or Roth IRA.

Comparing Qualified and Non-qualified annuities

Here is a more complete list of the similarities and differences between qualified and non-qualified annuities:

Qualified Annuities
Tax-deferred contributions and earnings
Penalty for early withdrawa
Invest pre-tax dollars
Individual must have earned income
IRS Contribution limits
In most cases, withdrawals must begin by age 70½

Non-qualified Annuities
  Tax-deferred earnings
  Penalty for early withdrawal
  Invest after-tax dollars
  No earned income requirement
  No IRS contribution limits; WoodmenLife limits contributions to $25,000 per year.
  No federal withdrawal rules, but there could be state laws

Qualified Annuities Non-qualified Annuities
  Tax-deferred contributions and earnings Tax-deferred earnings
  Penalty for early withdrawal Penalty for early withdrawal
  Invest pre-tax dollars Invest after-tax dollars
  Individual must have earned income No earned income requirement
  IRS Contribution limits No IRS contribution limits; WoodmenLife limits contributions to $25,000 per year.
  In most cases, withdrawals must begin by age 70½ No federal withdrawal rules, but there could be state laws

Non-qualified Tax Advantages

Retirement Considerations

You also need to consider how you will receive your non-qualified annuity proceeds at retirement. Typically, annuitants do this in one of three ways:

Choosing one of the “fixed payment” alternatives spreads the tax liability over time, because only the earnings are taxed.

What's next?

Your Representative will prepare a customized plan that best meets your specific needs and budget. Get started by connecting with your Representative.

Learn More

Disclosures

  1. WoodmenLife, its employees and Representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.
  2. You may be subject to income tax on all or part of the amount withdrawn. In addition, you will pay a 10% federal income tax penalty on earnings you withdraw before age 59½, unless you qualify for an IRA penalty exception.

WEB65 - 4/1/2019