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An annuity is a contract
between you, the purchaser
or owner, and an insurance
company, the annuity issuer.
The Four Parties To An Annuity
Contract There are four parties
to a contract: the annuity issuer,
the owner, the annuitant, and
the beneficiary.
The owner is the individual
or other entity who buys the
annuity and makes the
contributions to the annuity.
Qualified annuities are used in
connection with tax-
advantaged retirement plans,
such as 401(k) plans, Section
403(b) retirement plans, or
IRAs.
Qualified annuities are subject
to the contribution, withdrawal,
and tax rules that apply to tax-
advantaged retirement plans.
One of the attractive aspects of a
nonqualified annuity is that its
earnings are tax-deferred until
you begin to receive payments
back from the annuity issuer.
Like a qualified retirement plan, a
10 percent tax penalty on the
taxable portion of the distribution
may be imposed if you begin
withdrawals from an annuity
before age 59?.
Unlike a qualified retirement
plan, contributions to a
nonqualified annuity are not tax-
deductible, and taxes are paid
only on the earnings when
distributed.
Two Distinct Phases To An
Annuity There are two distinct
phases to an annuity: the
accumulation phase and the
distribution phase.
There is no limit to how much you
can invest in a nonqualified
annuity, and like other qualified
retirement plans, the funds are
allowed to grow tax deferred until
you begin taking distributions.
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