Understanding Qualified & Non-Qualified Plans
Qualified annuities are investment vehicles that are set up by employers for the benefit of employees. Funds that are deposited to a qualified annuity are made from dollars that are invested before any income taxes are removed from them. Self-employed individuals often use these types of investments. Most of the time, the annuitant (e.g., employee) has no control over the investments that are made on their behalf.
Non-qualified investments are considered investments that are made by the investor using after-tax dollars. These funds are almost always placed into IRA accounts at banks, mutual fund companies or broker-dealers. Investors often manage these funds on their own and decide what investments they will include in their portfolio. Some investors do invest in annuities although these are consiidered non-qualified annuities.
Who can sell annuities?
Variable annuities require a special license known as a Series 6 license. In addition, a Series 63 is required in each individual state.wher the annuities are being sold. Some states have other licensing requirements for the sale of annuities.
How can I transfer a qualified annuity?
In order for an investor to transfer a qualified annuity it must be transferred to an account that does not contain non-qualified funds. There are two options for these types of transfers, they are:
Liquidate and transfer - With the permission of the plan administrator, an annuitant may liquidate the annuity and turn it into cash. At that time, the funds may be transferred to a new custodian for investment. Many firms will set up an IRA Rollover account to receive these funds. These types of transfers generate a tax form which must be filed with annual taxes proving that the funds were deposited into another account. The new account cannot accept any additional funds from any sources;
Transfer in kind - Annuitants may request that a custodian-to-custodian transfer take place. This process would be done without incurring any tax forms to the annuitant. The reason that no tax forms are generated is because the custodians take care of the transfer and the funds never are sent to the shareholder.