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What Is a Non-Qualified Annuity?

Stan Haithcock
September 10, 2023
What Is a Non-Qualified Annuity?

What is a non-qualified annuity? It's an excellent question. When I do annuity edutainment, as you're reading right now, I'm going to break it down into English that we all understand because I'm from the South, and we speak very plain English here even though we talk with a little twang. Nothing wrong with that. I'm from the South. I'm from Stanley, North Carolina. No, they didn't name the town after me, but they should have, and they might. They might just put up the plaque now and say, "Yeah, Stanley, North Carolina. But now it's named after Stan The Annuity Man." By the way, if you're keeping score, I was named after Stan Musial, the baseball player. For all you older people out there, you know who that is. For all you younger people out there, Google it. Stan Musial.

Non-Qualified Means...

All right, this could be a very short blog. Non-qualified means non-IRA. Non-qualified means non-traditional IRA. Non-qualified means non-401K. Non-qualified means non-403B. Non-qualified means no Roth IRA, non-Roth IRA. Got it? Non-qualified means it's not an IRA. Non-qualified means it's your checking account, brokerage account, and savings account. That's non-qualified. Now, annuity types can be used in all types of accounts, whether it's an IRA, a Roth IRA, a non-qualified account, whatever, non-IRA. I love it when people say, "Never buy an annuity inside an IRA." They say it like that with that nasal thing. And I'm like, "You're the dumbest person I know, and I know a lot of people," because there's an annuity called a Qualified Longevity Annuity Contract that was put on the planet in 2014 for use in an IRA. Hello. Okay?

Roth IRAs, you can have annuities in there. In the perfect world that I live in, where the unicorns actually chase and catch the butterflies, Roth IRAs should really be used for market-type growth if you're still doing that because you've already paid the taxes, etc. But with non-IRA money, non-qualified, as they say, you can use annuities in non-qualified settings.

Tax Benefit

Let's look at it from a tax benefit standpoint, and just as a disclaimer, I'm not a tax lawyer or a CPA, nor do I have any goals to be that person ever. So, if you want real tax advice, see those two people: CPAs, tax lawyers, and people who will lay their rear end and fanny on the line for any type of tax advice. Now, taxation used in annuities and non-qualified, non-IRA accounts; there are some tax benefits. Let's look at one called MYGAs. Multi-Year Guarantee Annuities, Fixed-Rate Annuities, the annuity industry version of a CD in a non-qualified, non-IRA account, the interest you earn from a MYGA, remember it's a CD, can grow and compound tax deferred. Whereas, with the CD, if you bought it in a non-IRA, non-qualified account, you had to pay taxes on that interest. It doesn't make it better, but there's the difference right there. You can have non-qualified money, and the taxes will be deferred.

Immediate Annuity

Suppose you're buying a lifetime income stream, like an Immediate Annuity with non-qualified, non-IRA money. In that case, remember those types of annuitized income streams are a combination of principal plus interest and return of principal plus interest. That's the combination. In a non-qualified, non-IRA setting, you're buying an Immediate Annuity. You're only paying taxes on the interest portion, which is good. You'll get this lump sum every month hitting your bank account, but you're only paying taxes on the interest portion because you use non-qualified assets.

One of the things I would advise you to do is go to my site. You can use our calculators, which are proprietary and the best on the planet. You can run quotes 24/7, 365 at your leisure, and you can choose whether it's IRA or non-IRA, non-qualified assets, and the quotes that'll pop up. We're quoting all carriers for the highest contractual guarantee for your situation. In a non-qualified setting, you will see the amount of money that will hit your bank account every month, whether you start the income now, down the road, two years, or whatever. Then, you're going to see the taxable portion. That's the cool part. You can go to our calculators and run, "Hey, what's this lump sum going to pay? What's it going to pay if it's joint life with my spouse? What's it going to pay if I defer, etc.? What's it going to pay if I put it joint life with cash refund?" However, there are some tax benefits for using non-IRA assets in a non-IRA setting.

Now, that's part of what we need to do. Go to my site, and you can schedule a call with us. We're going to talk about how much money you need to have on IRAs, how much money is non-IRA, and determine the best use of those assets to achieve the goals you want to achieve contractually with annuities. But just remember, non-qualified means non-IRA. Many people out there have IRA assets that are the majority of what they have, which is fine, whether it's IRA or 401K. 401K can be rolled into a rollover IRA. It's qualified. What we're talking about today is the non-qualified part. But part of the conversation we have to have is, where's the best place to put your money? What's the most beneficial for you? Not only from a contractual guarantee standpoint or a strategy standpoint but also from a tax standpoint. We will work in conjunction with your CPA and/or tax lawyer and get on that phone with them and have them sign off on what we are thinking and what they are thinking so that you are not going to make any mistakes. We don't want you to make any mistakes, and there's no urgency to buy an annuity. The urgency is for you to understand them, understand what non-qualified means, understand where that might fit for you, and understand that annuities or contracts.

With that being said, my name is Stan The Annuity Man, and I'm so glad you joined us. I'll see you next time.

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.

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