Qualified annuities are held within tax-advantaged retirement accounts like IRAs or 401(k)s. The "qualified" designation refers to the fact that they meet IRS requirements for favorable tax treatment under the Internal Revenue Code.
Key characteristics of qualified annuities:
- Funded with pre-tax dollars (contributions may be tax-deductible)
- All withdrawals are taxed as ordinary income
- Subject to Required Minimum Distributions (RMDs) starting at age 73 (as of 2023)
- Early withdrawal penalty of 10% applies before age 59½
- Annual contribution limits apply (set by IRA or 401(k) rules)
Common funding sources include:
- Traditional IRA contributions or rollovers
- 401(k) or 403(b) rollovers
- Pension plan distributions
For Florida residents, qualified annuities remain subject to federal income tax on withdrawals, but you avoid state income tax since Florida has none. This makes qualified annuities particularly attractive for Ocala-area retirees who moved from higher-tax states.
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