However, depending on whether or not the annuity resides within a qualified plan, there may be limits on the amount of money you are able to contribute.
Non-Qualified Annuities
Non-qualified annuities are purchased directly from insurance carriers and deposits made come from your own savings. No federal or state restrictions exist on the amount of money you may contribute to a non-qualified annuity.
However, some insurance carriers place a contribution limit of $1 million on annuity purchases unless prior approval is given. Any growth within the annuity remains untaxed until you withdraw it, which cannot be earlier than age 59-1/2. Any withdrawals made prior to that age will result in ordinary income taxes plus a 10 percent penalty on the portion of the withdrawal that is considered growth.
Qualified Annuities
Qualified annuities reside within retirement plans like IRAs and 401Ks. The features and benefits of qualified annuities are identical to their non-qualified counterparts, and the only difference surrounds the taxation and deductibility of deposits and withdrawals.
All deposits result in an income tax deduction, and contribution maximums have been established by the IRS. Withdrawals from qualified annuities prior to age 59-1/2 result in ordinary income taxes plus a 10 percent penalty on the entire amount withdrawn.
Annuities Inside 401Ks
Annuities held within 401Ks are designated as qualified products. If you’re contributing to a 401K and are under age 50, the maximum contribution you can personally make in 2010 is $16,500.
These deposits come via payroll deduction in dollar amounts or percentages of your choice. If you’re over age 50, the contribution limits increase to $22,000.
Annuities Inside IRAs
If you choose to purchase an annuity within your IRA, that product is considered qualified and the contribution maximums follow the established IRS guidelines. For 2010, the IRA contribution limit is $5,000 if you’re under 50-years-old and $6,000 if you’re over 50.
References
IRS.gov: 401k Resource Guide
ImmediateAnnuities.com: Non-Qualified Annuity Tax Rules
Resources (Further Reading)
Morningstar: How Annuities Fit In an IRA
Total Return Annuities: IRA vs. Annuity – A Tricky Choice When You Retire
This article is a Twisted Nonsense Exclusive! (12/06/2010)
No comments :
Post a Comment