Americans face a variety of options when saving for retirement. Available retirement account types range from IRAs to 401ks and annuities, while each of these account types offers yet more options, such as a traditional IRA vs. a Roth IRA. Retirement accounts and pensions fall into a variety of categories, among them qualified and non-qualified investment accounts. The differences between qualified and non-qualified retirement accounts prove relatively obvious and simple.
Qualified investment accounts constitute funds for which the Internal Revenue Service (IRS) implements special tax provisions, such as allowing you to accrue tax-deferred funds. As per IRS regulations, you may only put earned income into a qualified account -- an inheritance, for example, may not go in a qualified account. Generally, the IRS doesn't allow you to withdrawal funds from a qualified account until reaching the age of 59 years and six months. Two types of qualified accounts exist, personal retirement savings accounts and retirement savings accounts created by employers.
Non-qualified investment accounts are those receiving no preferential tax treatment from the IRS. When you place money into these accounts, it gets taxed as any other source of income would. Numerous types of accounts constitute non-qualified accounts, as technically any account, from a bank account to certain retirement funds, not receiving preferential tax treatment is a non-qualified account. Deferred annuities provide the sole exception to the non-qualified accounts rule. These accounts allow income to grow tax-deferred in the same manner as a qualified account, though technically constitute non-qualified accounts.
Qualified vs. Non-qualified Accounts
The difference between qualified and non-qualified investment accounts lies in their tax status. Both are accounts used for investing, though the former receives preferential tax treatment and the latter does not. Because qualified accounts grow tax-deferred, these accounts often prove susceptible of full taxation when you withdraw funds. When you withdraw funds from a non-qualified account, on the other hand, you only pay taxes on interest earned -- principal funds prove tax-free when removed from the account.
Common qualified investment accounts include traditional and Roth IRAs, 401ks, 403bs and certain pensions created by employers for employees. Annuities constitute qualified accounts in some cases and non-qualified accounts in other cases, depending upon the annuity in question. The prospectus of an annuity should make clear whether a certain account meets the requirements for a qualified account.