Qualified | Non-Qualified |
---|---|
Funded with pre-tax money. | Funded with post-tax money. |
Taxes are paid after retirement when distributions are made. | No income taxes paid on principal upon withdrawal. Taxes are only due on interest earned. |
Less expensive to fund now. Tax savings occurs immediately. | More expensive to fund now. Tax savings occurs in the future. |
Traditional retirement accounts such as 401k and IRAs are qualified retirement savings vehicles. | Withdrawals are taken from accrued interest first and are taxed until all interest is paid, then principal is paid out tax free. |