Non Qualified Annuities: A Continuous Income Flow
If you have the aim of saving money for your retirement then annuities are the best available alternative. Generally, annuities can be divided into two main categories qualified annuities and non qualified annuities. A qualified annuity is funded with pre-tax money. In a qualified annuity, whenever a payment is taken, that amount is taxable at a nominal rate. On the other hand, a non qualified annuity is funded with after-tax money. It means that only a particular amount of the payment is taxable.
There are main two reasons for purchasing non qualified annuities. The first reason is to supplement the money you are investing in an employer-sponsored scheme. The second reason relates to those people who are self employed. Self employed people use this annuity as an alternative source of retirement income. However, it is recommended that before investing in a non qualified annuity, you should invest the optimum amount permitted in your employer-sponsored scheme. For example, suppose you are a part of ESOP (it keeps your pension amount in company's stock), then you may consider a non qualified annuity as an alternative to invest in various other equity portfolios. Suppose you have a benefit plan which is paying you a definite amount after your retirement, then investing money in a variable non qualified annuity is a good option because it helps in surpassing inflation. Benefits of Non qualified Annuity The prime benefits of a non qualified annuity are: tax-deferred income and a continuous chain of earnings after retirement. The non qualified annuities are also known as standalone annuities. It does not have any contribution boundaries. What it means is that according to your choice, you can add as much money to your annuity, as you like. Moreover, you can add it through regular payments or a lump sum amount. Another prized feature of this annuity is that you are permitted to place earnings from any source into your account. Also, there is no ruling which limits a specific age (generally 70.5 years) from which you can start taking your payments. Thus, non qualified annuities give you control over your future financial planning. Choosing the Contract When it comes to purchasing annuities along with an existing IRA, then there is no such law or rule that disallows it. In order to purchase a non qualified annuity in conjunction with your IRA contributions, you can effortlessly choose the contract which permits you to invest money annually. Needless to say, it should be in accordance with IRS rules. Whenever you are ready, you can convert the annuity into a continuous income flow. There are some doubts over this approach because apart from the tax deferred earnings provided by IRA, a variable annuity doesn't provide any additional benefits related to tax. Irrespective to these doubts, non qualified annuities have been purchased widely with or without any IRA contributions. With your determination to save money, go ahead and choose which type of non qualified annuity would work best to ensure that you have a continuous income flow. |
