'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.