Retirement Income: Qualified vs Non Qualified Money - YouTube

Today's cardinal lesson is putting some  definitions and some understanding around  

what appears to be a simple term, qualified money  versus non-qualified money, so it either is or  

it isn't, and I try to stay away from terms like  these because they can be confusing to consumers,  

and I've stayed away from them but I think that a  lot of people that write and speak as I do, in the  

press, about the subject of money, they use these  terms and so I have a lot of consumers coming to  

me and they're really wondering, or acting like  they know the difference, and then they'll stop  

me and they'll say now tell me exactly what what  you're talking about here with qualified and  

non-qualified, so that's what we're going to do  today. Put simply, is that if money is qualified  

it's going to be either an IRA, or a 403b,  or your 401k at work, those are all examples  

of qualified money. When people are coming  to us at retirement, now they're wondering  

what am I going to do with all my qualified money,  how much do I have, how long is it going to last,  

what are the rules about distributing it?  Typically people have more of this type of money,  

qualified money, than they do non-qualified,  because there's their savings for retirement.  

It's not always true, but sometimes true,  and most people have both. So this is what  

we're referring to, is that money that you've  never paid taxes on, at least not yet, you're  

going to pay taxes or your kids are going to pay  taxes if they're the beneficiaries after you die.  

Now that's referring to money that  has gone in there without taxation  

and then on the principal and then the earnings  over the whole years. When we get people that  

are coming in that are around my age, or a  little older, and they're around 65, 64, 63,  

a lot of their account is that accumulated  earnings, but it doesn't really matter if their  

principal was not taxed and their earnings were  not taxed and they can continuously not be taxed  

until they draw it out and then there's rules with  minimum distribution on qualified money that you  

have to start drawing it out at age now 72 and  after. Many folks have a need to draw some of it  

out before then just to live on in retirement, so  the whole concept with qualified money is you're  

going to pay the taxes later, and boy will you,  especially if you don't plan properly. There are  

a huge amount of rules and regulations around  how money, IRA money, is managed, first to  

the custodian or bank or institution that's  holding the money, to the consumer who is you,  

and how you manage this money and you break  one rule you can jeopardize the whole account,  

the tax free status of the whole account, or tax  deferred status, and to the people like me who  

make recommendations on this, we all got to be  right and we got to be 100% right in how we do,  

because mistakes are costly. Now non-qualified  money is just money where you've paid the taxes on  

the principal. You've got it in a savings account  or a brokerage account or in a life insurance  

policy or an annuity and the principal going in  to this account is already after tax money so it's  

there, it's yours to draw out. I mean the good  part about that is you already paid the taxes.  

Now taxes are due typically as you earn money, so  you can put money inside of a savings account or  

a brokerage account and as you get paid interest  or have earnings, even if you don't draw them out,  

you've got to pay taxes year to year on those  earnings. Now there's some exceptions to this,  

on non-qualified money, like annuities, life  insurance, where they have tax deferred status,  

so the principal has already been taxed but the  earnings is not, because it's accumulating tax  

deferred and then it becomes taxable when you draw  it out so this distinction. I hope this helps some  

of you when you are reading, listening, learning.  I've written a couple of books on these subjects,  

"The Complete Cardinal Guide to Planning for  and Living in Retirement", it talks about this  

very subject and helps you make decisions about  it. When you see these terms, qualified or non,  

it either is or it isn't, and you just put  them in one category and I've given you some  

some information about these. I'm hams  Scheil and I thank you for listening.

you