Qualified Money
Retirement funds held in tax-advantaged accounts like IRAs and 401(k)s, generally taxed when withdrawn.
'Qualified' money refers to dollars inside tax-advantaged retirement accounts such as traditional IRAs and 401(k)s, where contributions were typically pre-tax and growth is tax-deferred. Withdrawals are generally taxed as ordinary income, and required minimum distributions eventually apply.
'Non-qualified' money, by contrast, is after-tax money outside such accounts, where only the earnings are typically taxed. The distinction affects how and when annuities and other vehicles are taxed.
Example
Money rolled from a 401(k) into a traditional IRA stays 'qualified,' so withdrawals remain taxable as ordinary income.
This definition is for general educational purposes only and is not financial, tax, or legal advice. Tim Hartle is an independent insurance professional. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company and are not FDIC insured. Rules and product features vary by situation and by state. Please consult a qualified advisor about your own circumstances.
Related Terms
Traditional IRA
A tax-deferred individual retirement account where withdrawals are generally taxed as income.
Roth IRA
A retirement account funded with after-tax dollars where qualified withdrawals are tax-free.
401(k)
An employer-sponsored retirement plan funded by payroll contributions, often with an employer match.
Required Minimum Distribution
The minimum amount you must withdraw each year from most tax-deferred accounts once you reach the required age.
Go Deeper
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Annuities are insurance contracts. Guarantees, including guaranteed lifetime income benefits where available, are subject to the claims-paying ability of the issuing insurance company. Product features, fees, withdrawal restrictions, and surrender charges vary by contract.