Qualified Annuity

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Definition: Qualified Annuity

Qualified Annuity can be defined as an annuity that is funded through pre-tax dollars. Qualified annuities are generally bought from pre-tax dollars or some sort of pension plan of the employer while non-qualified annuities are bought after tax deductions have been done on the income of an individual.

Going over the definition of annuity which means that a financial product that is designed to pay out a steady amount of cash over time. Annuities are either qualified or non-qualified depending upon the type of funds used in investment of buying these contracts from financial institutions such as insurance companies. Hence the same annuity can be qualified for one owner and non-qualified for another.  

The earnings on a qualified annuity are taxed as regular income while in case of non-qualified annuity it is taxed on lower long term capital gains rate. This is due to non-qualified annuity owners already paying taxed on that particular income.

Hence, this concludes the definition of Qualified Annuity along with its overview.


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