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 If you are under the age of 59 1/2, you will also have to pay a penalty of 10% on the amount withdrawn.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 Because you bought it with your after-tax money, the portion you paid into the annuity will not be taxed when withdrawn.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.
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