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Understanding Qualifying Annuities

Using annuities inside a qualified IRA is a given. Why? Because you are purchasing it because of the legal guarantees. The Qualified Longevity Annuity Contract, the most recent annuity type created in 2014, is qualified because you can only utilize it in a qualified account. Annuities are acceptable in qualifying accounts, yes. Why would you employ them? Because you are purchasing the goods for the contractual promises where you will use them. Instead of what they might do, you should focus on what they’ll do. Therefore, you should get up and go if your adviser or the person in charge of your stock portfolio says something like, “Never place an annuity inside an IRA.” Is that clear?

What is a non-qualified annuity?

 If you use money from an asset other than an IRA, such as a checking or savings account, a bank account, or a trading account that isn’t an IRA. That annuity is not qualifying. The crucial point is that if you withdraw money, the contractual assurances remain the same. The taxes on the money you withdraw from the annuity depend on whether it is qualified or non-qualified.

So, is it possible to jointly own a qualifying annuity? Let’s say you have two clients: a married couple named Chester and Martha. Is the annuity in Chester’s IRA something Chester and Martha can own? No. 

However, it doesn’t necessarily mean that Martha won’t take part. You, the IRA’s owner, can own the annuity in an IRA and add your husband or wife. Chester could decide to be a dual annuitant and include Martha in the annuity payout. The payee on whom the payment is based is the annuitant. Therefore, you and your husband or partner might both be joint annuitants, but they couldn’t own the annuity. You, the IRA owner, may only own the annuity. Does your non-qualified annuity need taxation? When you remove the money, the answer is “yes.” Therefore, if you have an instant annuity in a payment method inside a non-qualified, non-IRA account, you are subject to taxes on the lifetime income stream’s interest component.

However, if you have a Multi-Year Guaranteed Annuity, Fixed Indexed Annuity, or Variable Annuity- all of which fall into the category of delayed annuities – you can defer those gains and let the money develop in an unqualified environment for as long as you like. However, you must pay taxes on the money when you withdraw it, and last in, first-out ordinary income tax rates apply (LIFO).

At this point, it must be stated: as always: you should never seek tax advice from anyone other than a CPA or a tax attorney.

How do you determine if your annuity qualifies?

You shouldn’t need to know the type, but it’s a qualified conventional IRA, rollover IRA, 403(b), or 457 if you’re not paying taxes on the gains. These are regarded as accounts of the retirement variety. While you must pay taxes when you withdraw the money, your 401(k) is a qualifying account. You’ve been adding to it continuously, but you’ll need to pay a tax when you finally withdraw it. In these accounts, that is essentially what a qualifying annuity is. That doesn’t imply that you must have a pension in your qualifying account, but it does imply that you can provide an annuity that is reasonable and beneficial.

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