A qualified annuity is an annuity held inside a tax-advantaged retirement account such as a traditional IRA, SEP IRA, or funded via a 401(k) or 403(b) rollover. The term “qualified” refers to the tax status of the money, not the annuity product itself.
Tax Treatment
Because the premium was contributed with pre-tax dollars, the entire withdrawal is taxed as ordinary income, not just the gains. Qualified annuities are also subject to required minimum distributions (RMDs) starting at age 73.
When Qualified Annuities Make Sense
Buyers sometimes roll an existing IRA or old 401(k) into a qualified MYGA to lock in a guaranteed rate on a portion of their retirement savings. The annuity does not provide additional tax deferral (the IRA already does that), but it does provide a guaranteed rate and principal protection that other IRA investments may not.