What is a non-qualified annuity?

Non-qualified annuities are funded by dollars that have already been taxed, according to annuities expert Hersh Stern for ImmediateAnnuities.com. Qualified annuities are typically tied to federally approved retirement plans that allow funding with tax deductible or pre-tax dollars, hence the term "qualified."

Annuities are financial products funded by individuals to provide a steady stream of income at a pre-determined time, explains Stern. If the annuity is non-qualified, the profits alone are subject to income tax and do not incur any additional taxation or penalties that federal rules may mandate for their qualified counterparts. Annuities are typically used for retirement purposes.