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Diference between 401 an annuity

I cashed in a retirement account I had when working at a school. Is this a qualified retirement plan or non qualified annuity?
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1 Best answer

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MiriamF
Intuit Alumni

Diference between 401 an annuity

A 401k is a qualified retirement plan, and the most common type of plan offered by large corporations. You contribute to it at work with pre-tax money, so when you withdraw the money, it will be taxed. If you are under the age of 59 1/2, you will also have to pay a penalty of 10% on the amount withdrawn.

If you worked at a state school, the more common type of plan is a 403b, which is a type of tax sheltered annuity. A 403b is also a qualified retirement plan.

An annuity can be either a qualified or nonqualified plan, depending upon how it was purchased. If you got it through your employer, it is a qualified plan, meaning that it is funded with pre-tax money and governed by federal rules.

The other type of annuity is a contract you purchase on your own from an insurance company or broker. Because you bought it with your after-tax money, the portion you paid into the annuity will not be taxed when withdrawn. The accumulated interest, on the other hand, will be taxed. Whether there will be a penalty for early withdrawal depends upon what the contract stipulates. Because it is not governed by federal rules, it is a nonqualified retirement plan.

More information about qualified retirement plans can be found below.
https://ttlc.intuit.com/replies/3301001

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1 Reply
MiriamF
Intuit Alumni

Diference between 401 an annuity

A 401k is a qualified retirement plan, and the most common type of plan offered by large corporations. You contribute to it at work with pre-tax money, so when you withdraw the money, it will be taxed. If you are under the age of 59 1/2, you will also have to pay a penalty of 10% on the amount withdrawn.

If you worked at a state school, the more common type of plan is a 403b, which is a type of tax sheltered annuity. A 403b is also a qualified retirement plan.

An annuity can be either a qualified or nonqualified plan, depending upon how it was purchased. If you got it through your employer, it is a qualified plan, meaning that it is funded with pre-tax money and governed by federal rules.

The other type of annuity is a contract you purchase on your own from an insurance company or broker. Because you bought it with your after-tax money, the portion you paid into the annuity will not be taxed when withdrawn. The accumulated interest, on the other hand, will be taxed. Whether there will be a penalty for early withdrawal depends upon what the contract stipulates. Because it is not governed by federal rules, it is a nonqualified retirement plan.

More information about qualified retirement plans can be found below.
https://ttlc.intuit.com/replies/3301001
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