Table of Contents

Is My Annuity Qualified?

Stan Haithcock
July 4, 2022
Is My Annuity Qualified

So, how do I know if my annuity is qualified? So, what is a qualified annuity? It's an annuity where you've used funds that have not been taxed, like your traditional IRA, which leads me to a little bit of a rant. I get very sick and tired of agents and advisors, primarily stock-type advisors, fee-only advisors, and people who don't know anything about annuities.

Annuities in an IRA

Of course, annuities can be used inside of an IRA qualified. Why? Because you're buying it for the contractual guarantees.The latest annuity type developed in 2014, called a Qualified Longevity Annuity Contract, keyword qualified, is that you can only use it in a qualified account. So, for all you masters of the universe that do not like Stan The Annuity Man® spewing the truth out here, yes, annuities can be used in IRAs. Yes, annuities can be used in qualified accounts. And why would you use them? You would use them because you're buying them for the contractual guarantees. You own them for what they will do, not what they might do®. So, if your advisor, your master of the universe, stock portfolio guy is out there saying, "Never put an annuity in an IRA," you need to get up and walk out because they have no idea what they are talking about. Am I clear?

Non-Qualified Annuity

So, what is a non-qualified annuity? It's an annuity in that you use the funds from a non-IRA type asset, like a checking account, a banking account, a savings account, or a brokerage account that's not an IRA. That's a non-qualified annuity. Now, the key is because the contractual guarantees are the same once you take money out. Once you take money out of the annuity, the taxation of that money depends on whether it's non-qualified or qualified. So, can a qualified annuity be jointly owned? So, can Chester and Martha own the annuity inside Chester's IRA? No, they can't.

But that doesn't mean Martha will not be a part of it. In an IRA, you, the owner of that IRA, can own the annuity, but you can choose to add your spouse or partner. Chester could choose to add Martha to the annuity payout, and be a joint annuitant, which is annuitant. The annuitant is the payee on who's the payment based. So, it could be a joint annuitant with your spouse or partner, but that spouse or partner cannot own the annuity. Only you, the IRA owner, can own the annuity. Do you have to pay taxes on your non-qualified annuity? But if you're asking, "Do I have to pay taxes, Stan, on my non-qualified annuity?" The answer is yes when you take the money out. So, if you have an immediate annuity, that's in payment form in a non-qualified, non-IRA account, you're paying taxes on the interest portion of that lifetime income stream.

Deferred Annuities

But if you have a Multi-Year Guaranteed Annuity or a Fixed Indexed Annuity or variable annuity, and those are kind of deferred annuities under that category, you can defer those gains, and you can just let it grow for as long as you want in a non-qualified setting. But when you take the money out, you have to pay taxes on it, and it's taxed at ordinary income levels, last in, first-out (LIFO). I'm not a CPA, I'm not a tax lawyer, and you should never take tax advice from anybody other than those two people. That's a pretty basic thing you can take to them and say, "Stan, The Annuity Man said my non-qualified annuity you've got to pay taxes. He said yes. And he said when you take the money out, it's taxed at ordinary income levels and LIFO." And you know what your CPA and tax lawyer say, "That Stan The Annuity Man knows what the heck he's talking about." I guarantee you.

Knowing the Type

So, how do you know if your annuity is qualified? You don't need to know the type, but if you haven't been paying taxes on the gains, it's qualified traditional IRA, rollover IRA, 403(b), 457. All of those account types that we handle at Those are considered retirement-type accounts. Now, you do have to pay taxes when you bring the money out, but all of this time, 401(k), your 401(k) is a qualified account. You've been adding to it, adding to it, adding to it, but when you finally take it out, you're going to have to pay taxes on it. That's, in essence what a qualified annuity is inside of those accounts. That doesn't mean you need to have an annuity inside your qualified account, but what it does mean is you can have one in there if it's suitable and appropriate for you.

Do You Need an Annuity?

Remember, ask yourself two questions and remember the acronym PILL before buying. I'll go over them real quick for you. The two questions. What do you want the money to do contractually? When do you want those contractual guarantees to start? And the PILL acronym is Principle Protection, Income for Life, Legacy, and Long-term Care/confinement care. If you don't need to solve those four problems, one of those or more of those four problems, you do not need an annuity, whether it's non-qualified or qualified. But just remember, because you're going to read a lot of stuff on the internet, and you're probably going to be told stuff by your advisor, not to put an annuity of any type inside your IRA. That's garbage. You buy an annuity for the contractual guarantees what it will do, not what it might do.

You never buy an annuity for the hypothetical, theoretical, projected, back-tested, hope that unicorn's chasing the butterflies scenario that's being pitched, never by the dream, because you're going to own the contractual realities. But with that being said, the contractual realities of annuities might fit your situation using qualified money. I got a call the other day, and the person on the phone said, "We're looking to buy an immediate annuity, but most of our assets, most of our investible assets are in qualified accounts, IRA type accounts, and our advisor, master of the universe said, "Never buy an annuity inside of an IRA," which is garbage.

Required Minimum Distribution (RMD)

So, I said, "Well, you can put an immediate annuity inside your IRA. You can use IRA assets to buy one. And when the income stream starts, you will be taxed at ordinary income levels, just like any money coming out of an IRA. So, it makes sense if you need lifetime income and the only assets that you have are the IRA-type assets. You can do that." Here's another thing you need to understand. And this kind of blew the guy away, because the guy says, "Well, what about required minimum distributions? What about RMD, Stan The Annuity Man? The cool part about that is, when you buy an immediate annuity with IRA funds, the RMDs for the funds you bought for that immediate annuity.

So, for instance, let's just say you bought a hundred thousand dollars immediate annuity using IRA assets, and that income stream is coming out, let's just say you're getting a thousand dollars a month, that thousand dollars a month that you're paying taxes on will fully satisfy the required minimum distributions for that hundred thousand dollars immediate annuity that you purchased inside of your IRA. Sounds good to me, turnkey. But just remember this, if you need guarantees if you need principle protection guarantee or a lifetime income type guarantee, and you have IRA assets primarily, you don't have a lot of non-qualified, you have qualified assets that you can use; it’s okay to use an annuity contractual guarantee to solve for that specific goal using IRA qualified assets.

Never forget to live in reality, not the dream®, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.

Learn More