Non-Qualified Annuities refer to annuity contracts that are purchased with after-tax dollars and do not receive tax benefits at the time of investment. Unlike qualified annuities, which are associated with retirement accounts that offer tax-deferred growth and tax deductions, non-qualified annuities allow the investment to grow tax-deferred until withdrawals are made.
The primary feature of a non-qualified annuity is that the contributions made to the annuity are not tax-deductible. When distributions are taken, the earnings are taxed as ordinary income, while the principal amount (the initial investment) is not taxed again since it was already taxed when contributed. This can make non-qualified annuities a useful tool for individuals looking to save for retirement or other long-term goals outside of tax-advantaged accounts.
For example, if an individual invests $50,000 in a non-qualified annuity and it grows to $80,000, any withdrawals will have tax implications only on the earnings portion ($30,000) at the time of withdrawal.
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