Which of the following best defines a qualified annuity?

A qualified annuity is best defined as an annuity that is funded pre-tax. This means that contributions to a qualified annuity are made with before-tax dollars, allowing the investor to defer taxes on the amount contributed as well as on the earnings until withdrawals are made, typically during retirement. This pre-tax funding is often associated with retirement accounts that comply with government regulations, such as IRAs or 401(k) plans, providing tax advantages that enhance retirement savings.

In contrast, annuities funded with after-tax dollars would not qualify for these specific tax benefits and would instead fall under non-qualified annuities. The tax treatment for qualified annuities facilitates retirement planning because it allows individuals to grow their investment without immediately facing tax consequences. Understanding this distinction is crucial for effective financial planning and investment strategies.