Tax Rules

Yes, you can. Movement from a 401k is typically called a rollover. If you transfer funds from 401(k) or IRA into an annuity, no tax consequence as long as the annuity is inside an IRA. Similarly, mutual funds, stocks and bonds can also be inside an IRA. An annuity does not change the IRA classification. When people have separated service from the employer, they often do a 401(k) rollover to an IRA, or Roth 401(k) to a Roth IRA. The IRA can be invested into an annuity. Any IRA, SEP IRA, SIMPLE IRA or Roth IRA can be moved into an annuity at the owner's discretion. Other retirement accounts (457 or 403b) can be rolled over as well. Caution: A 401(k) and a 457 plan have different access rules.","reminder":"\Reminder: Similar to a 401(k), an IRA account also has the 'age 59 1/2 rule' where the IRS requires the owner to wait till age 59 1/2 before taking withdrawals. Exceptions are referred to the 72(t) or 72(q) rules. Please consult with an accountant. The 401(k) rollover or IRA transfer should be completed within the 60-day period.

Annuities offer guaranteed income, and guaranteed growth on the Benefit Base regardless of market conditions. They also grow tax-deferred even if they are not part of a tax-qualified account. The volatility is limited and very low. It'll be unlikely to lose money on fixed index annuities, as long as the owner doesn't take over 10% withdrawals too early.

All annuities are tax-efficient saving vehicles because money inside annuities grows tax-deferred so your annual profit is not subject to federal tax or state tax that year. The deferral benefit allows your profit to be fully reinvested into your account, and over time the compounding growth can be significant. For long-term investors or high-income families, annuities tax deferral benefit can be tremendous.

Yes. If you inherit a non-qualified annuity, you will have to pay taxes.

When you use non-qualified money, your interest is paid to you over the duration of the annuity. This can be a big benefit because it disperses your tax burden. When you use qualified money, all of the income you receive from your annuity becomes taxable. However, after the first calendar year you no longer need to include the amount of money in your annuity in your required minimum distribution (RMD) calculations.

{"subtitle":"These terms have to do with the tax treatment of your annuity.","answer":"'Qualified' often refers to before-tax money, and 'Non-Qualified' often refers to after-tax money. If you buy your annuity with after-tax dollars (e.g. checkings/savings), it'll be a 'Non-Qualified' account. If you use pre-tax dollars (e.g. a 401(k) or IRA), it'll be a 'Qualified' account.","example":"\Example:\n \u003cstyle\u003e\n td, th {\n border: 1px solid #DDDDDD;\n text-align:left;\n padding: 8px;\n }\n table {\n table-layout: fixed\n }\n \u003c/style\u003e\n \u003ctable\u003e\n \u003ctr\u003e\n \u003cth\u003e\u003c/th\u003e\n \u003cth\u003eQualified Annuity\u003c/th\u003e\n \u003cth\u003eNon-Qualified Annuity\u003c/th\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd\u003ePrincipal/Payment\u003c/td\u003e\n \u003ctd\u003eBefore-taxed funds\u003c/td\u003e\n \u003ctd\u003eAfter-tax funds\u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd\u003eTax Treatment\u003c/td\u003e\n \u003ctd\u003eTax later\u003c/td\u003e\n \u003ctd\u003eTax only on earnings\u003c/td\u003e\n \u003c/tr\u003e\n \u003ctr\u003e\n \u003ctd\u003eCommon Source\u003c/td\u003e\n \u003ctd\u003e401(k), 403(b), 457, IRA Pension\u003c/td\u003e\n \u003ctd\u003eSavings, cash, stocks, bonds, mutual funds\u003c/td\u003e\n \u003c/tr\u003e\n \u003c/table\u003e","reminder":"\Reminder: Qualified funds can merge together, and Non-qualified funds can merge together, but Qualified funds and Non-Qualified funds cannot be mixed.

Profits from an annuity are taxed at ordinary income rates. If the contract is annuitized, meaning that distributions are made each month, quarter, or year, the portion of the distribution that represents earnings is taxed as income. In all cases, remember that only the profit is taxed, not the principle.