The Role of Tax-Qualified Annuities

The role of tax-qualified annuities is an important one for tax-qualified annuities make up more than half of the annual sales of annuities. Tax-qualified annuities are purchased with either pre-tax dollars or are the result of a rollover from a qualified plan, such as a defined benefit pension plan or a defined contribution plan.

Deferred annuities and mutual funds may be used as funding vehicles for 401(k), 403(b), 457 deferred compensation plans, SIMPLE IRAs, traditional IRAs, and Roth IRAs. Assets from any of these plans may be transferred to either deferred or immediate annuities and, if a trustee to trustee transfer, is a non-taxable event. Distributions from all tax-qualified retirement accounts, including qualified annuities, are always taxable whenever they occur. If distributions are taken prior to age 59½, a 10% excise tax is due, in addition to ordinary income tax

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