What is a defining feature of a non-qualified annuity?

A defining feature of a non-qualified annuity is that contributions are made with after-tax dollars. This means that the money used to fund the annuity has already been taxed, allowing the account to grow without being subject to additional tax on the contributions themselves. In a non-qualified annuity, taxation occurs only on the earnings when withdrawals are taken, rather than on the contributions, which have already been taxed.

This characteristic distinguishes non-qualified annuities from qualified annuities, which are typically funded with pre-tax dollars and are subject to different tax implications, including taxation on both contributions and earnings upon withdrawal. As a result, understanding that contributions to non-qualified annuities are made with after-tax dollars is crucial for a clear comprehension of how these financial products operate in the broader context of personal finance and taxation.