The Non-Qualified Annuity Market
The non-qualified annuity market consists of individuals who can benefit from annuities purchased with after-tax dollars to meet longer-term wealth accumulation or retirement planning needs – with emphasis on longer-term.
As discussed previously, deferred annuities may not be appropriate for shorter-term wealth accumulation purposes – generally those that will materialize before age 59 1/2; while immediate annuities are designed to provide long-term income – that is, income guaranteed for life. (Note: More on immediate and deferred annuities later.)
Non-qualified annuities are used to fund cash accumulation programs that do not qualify for a front-end tax deduction; but whether an annuity is qualified or non-qualified, funds always accumulate free of current income tax until withdrawn. For annuities in a qualified plan, there is no additional tax benefit. Therefore, the client should value other features of the annuity. However, non-qualified annuities also allow owners to continue tax deferral beyond the age 70, the mandatory withdrawal age for traditional IRA's and qualified retirement plans.
Or suppose a client inherits $20,000. If she doesn't need the money right away and wants to build a long-term nest egg, she might consider putting the inheritance into an annuity. By doing so, she'll gain the advantage of tax-deferral, and when it's time to withdraw funds from her non-qualified annuity, she will only be taxed on the accumulated interest.
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