Dana is contributing to an individual annuity while her employer contributes to a separate pension plan. What type of annuity is this?

The correct answer is that Dana's annuity is a qualified retirement annuity. A qualified retirement annuity is one that is funded with pre-tax dollars and is set up to meet specific IRS regulations, allowing the investor to defer tax on the earnings until withdrawal. Since Dana is contributing to her individual annuity while her employer has a separate pension plan, the context implies that she is likely using tax-advantaged funds to contribute to her annuity, making it a qualified option.

In this scenario, the distinction of the retirement plan being qualified is critical because it often allows for higher contribution limits and potential tax benefits that are not available to non-qualified annuities. Non-qualified annuities, for example, are funded with after-tax dollars and do not have special tax advantages under federal law. Furthermore, distinguishing between fixed and indexed annuities relates more to how the returns on the investment are calculated rather than the tax status, which is more relevant in this question.

By recognizing that Dana is contributing to her retirement plan in a manner that benefits from tax deferral characteristics, one can confidently classify her annuity as a qualified retirement annuity.