FAQ: What is "Qualified Money"?« Back to Questions List

FAQ:  What's the difference between qualified and non-qualified money?

Posted by David P.
Asked on March 3, 2022 10:45 am
1

What’s the difference between Qualified and Non-Qualified money? Qualified Money is the label given to money set aside pre-taxationfor Tax-deferred Retirement Programs (TDRPs) such as 401(k), 403(b), and IRA accounts.  People often choose to divert a portion of their earned income into these accounts to put off paying income taxes until they are in a lower tax bracket in retirement; at least, that’s what has been promoted to them. While deferring taxation sounds like a good option, that stance comes with some of its own problems and hoops through which a person must jump.  The main draw for diverting your earnings into this system is often the employer match that may offer an instant 100% gain as your employer matches every dollar you contribute with another dollar (1:1, or a percentage) of employer benefit into your account.  It can be very tempting to ”take the free money”.  The strings attached to this system are outlined in my TDRP video. Non-Qualified Money is money that a person has already paid income taxes upon and is therefore free of any governmental restrictions, fees, penalties, and further involvement; except for sales taxes applied as you may choose to spend this money.

Posted by David P.
Answered On March 3, 2022 11:35 am