Qualified vs Non-Qualified Money
Qualified (tax deductible contributions)
Qualified money is tax deductible and is often used with traditional IRAs and retirement plans. You benefit because you are able to defer taxes on your contributed amount until it is time to start taking withdrawals from your qualified account.
Beginning at age 70?, annuities purchased as qualified contracts must begin to take distributions determined by the IRS, called Required Minimum Distributions (RMDs). For qualified money, the entire distribution is taxed (at your current income-tax rate) at the time of the withdrawal.
Nonqualified (after-tax money contributions)
Nonqualified money includes any funds that have been previously taxed. If you buy your annuity with nonqualified funds, you still accrue tax-deferred interest throughout your lifetime. The benefit to purchasing an annuity with nonqualified, or previously taxed money, is that you are never required to take distributions at a certain age, as you are with a qualified account.