If A Retirement Plan Or Annuity Is Qualified This Means

Shawn Plummer

CEO, The Annuity Expert

Retirement plans and annuities are often qualified by the IRS, which means that they comply with certain requirements. Qualified retirement plans include 401ks, SEPs, SIMPLE IRAs, profit-sharing plans, money purchase plans, and defined benefit plans. An annuity is a financial contract between an insurance company and an individual or organization (such as a pension plan). When deciding on whether to invest in a qualified plan or annuity you will need to consider your risk tolerance level.

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A Bird’s Eye View Of What Annuities Do For Qualified Retirement Plans

Annuities are typically thought to be the most suitable form of retirement investment regarding:

  • immediate annuities are offered to people who require a steady and regular flow of money in retirement.
  • deferred annuities for accumulating savings that are eventually liquidated.

However, the substantial retirement incomes enjoyed by many individuals are based largely on qualified plans. We must briefly look at the characteristics of qualified plans to a greater extent in order to appreciate the role of annuities in retirement planning.

If A Retirement Plan Or Annuity Is Qualified This Means

What Are Qualified Plans


Qualified retirement plans are those that, because they satisfy the criteria established in the law, give plan sponsors and participants certain tax advantages. Internal Revenue Code 401 defines a qualified plan as a retirement plan sponsored by an employer that meets the requirements for being tax-advantaged.


However, qualified plans include individual retirement arrangements (IRAs) and other tax-advantaged plans not sponsored by employers.

Qualified Annuities

Annuities are categorized into qualified annuities and nonqualified annuities. A qualified annuity is purchased to fund a tax-qualified plan which includes:

If A Retirement Plan Or Annuity Is Qualified, This Means

Annuities and Qualified Retirement Planning

Lifetime Income

Annuities, because they can provide an income that lasts a lifetime, are good for retirement. You can use them inside a qualified plan or outside a qualified plan.

Building Wealth

Annuities are frequently used to accumulate money in retirement planning. They provide the important tax deferral accumulation advantage of tax deferral even when utilized outside a qualified plan. That favorable tax treatment results in potentially greater accumulations, as funds that might have been withdrawn to pay income tax liabilities are permitted to stay in the annuity and earn more interest.


Annuities may provide certain advantages in addition to tax deferral, including a high level of safety. Both the guarantee of principle and the minimum interest credit are provided in an indexed annuity.


All money withdrawn from a qualified retirement plan or qualified annuity is taxed as ordinary income (Roth IRA is not taxed). Additionally, the government imposes a 10% penalty for early withdrawals from qualified plans and qualified annuities until 59 1/2.

However, some early distributions are exempt from that penalty — such as in cases of hardship, higher education expenses, or purchasing a first home.

If A Retirement Plan Or Annuity Is Qualified

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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