What is the tax advantage of a non-qualified annuity?

The tax advantage of a non-qualified annuity primarily revolves around the concept of tax deferral on the earnings of the investment. In a non-qualified annuity, the money you invest grows without being taxed annually. This means that you are not liable for income taxes on the interest or earnings accumulated within the annuity until you begin to withdraw funds.

This deferral allows for the potential of compound growth, as you are able to reinvest the interest and earnings without the immediate tax impact. Once you do begin to take withdrawals, only the gains are subject to taxation as ordinary income, while the original contributions can be withdrawn tax-free.

The other options pertain to aspects of taxation that do not accurately describe the nature of a non-qualified annuity. For instance, contributions being tax-deductible is characteristic of qualified plans, while withdrawals being tax-free up to the total contribution amount does not distinguish the unique feature of non-qualified annuities. The tax treatment of growth is also pivotal in understanding the benefits of these financial instruments.