What Does "Non-Qualified Money" Mean?


The terms "qualified" and "non-qualified" money are usually used in conjunction with retirement plan assets. Understanding what makes money "qualified" leaves all other types of accounts as non-qualified money. The rules for certain types of investments or account change whether the money is qualified or non-qualified.

Qualified Retirement Plans

  • Qualified money is money in retirement plan accounts that meet the rules of the Employee Retirement Income Security Act (ERISA) and tax rules from the Internal Revenue Service (IRS). Most employer-sponsored retirement plans are qualified plans, including 401k, 403b and 457 plans. Individual retirement accounts (IRAs) are also qualified money. A distinguishing feature of qualified money is deposits into these plans are tax-deductible to the party making the deposit, either an employer or individual.

Non-Qualified Plans

  • An employer may set up supplemental savings or retirement plans that are not qualified by IRS rules. Non-qualified plans include deferred compensation plans, employee stock purchase plans and employee stock option plans. Non-qualified plans can be offered to select employees as additional employment incentives. An employer offering a non-qualified savings or retirement plan cannot deduct the money deposited into the plan.

Other Non-Qualified Money

  • Any individually owned investment account or savings account that is not an IRA would be non-qualified money. The difference becomes important with certain investment opportunities in which the type of investment does not meet the rules for qualified plans. An individual considering one of these plans would not be able to use money from an IRA to invest, but would need to find money from another -- non-qualified -- account to make the investment.


  • Annuities are insurance products that offer taxed-deferred growth of money set aside for retirement. Tax-deferred growth is usually associated with qualified plans such as a 401k or IRA. An annuity provides the same tax deferral for non-qualified money. One possible point of confusion is that qualified money can also be invested in an annuity. Using an annuity for IRA savings is redundant for tax-deferral purposes, because the qualified money in an IRA already grows tax-deferred.

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