Annuity Subclasses

There are three sets of factors that define the type of annuity you purchase. These include the time between signing the contract and when distributions begin (deferred v. immediate), the tax status of the annuity (qualified v. nonqualified), and the number of premiums paid (single premium v. flexible premium).

The length of time between the signing of the contract and the actual annuitization of funds will very dependent upon individual desires. While some annuities are designed to accumulate interest for years, others are made to provide income right away. Deferred annuities take over a year before annuitizing; immediate annuities begin distributions sooner than a year after the signing of the contract. In some cases, the contract you sign will not specify which of these your annuity falls under leaving the contract owner the freedom to choose when to annuitize.

The tax status of an annuity plays an important role in distributions. When pre-tax dollars are used to fund an annuity, such as an IRA annuity, the annuity is considered to be qualified. If post-tax dollars are used, the annuity is nonqualified. This status will decide how taxes are taken out of your distributions after the annuitization period begins.

Finally, the way you put money into an annuity will fall into one of two categories. If you are putting just a one-time payment into your annuity, it is considered to be a single-premium annuity. Sometimes this distinction is granted to any annuity that accepts premiums for up to one year after signing the contract. If you are putting money into the annuity for over one year, it is considered a flexible premium annuity.