Qualified

The name given an investment account where taxes have not yet been paid on the money invested or the gains earned. The qualified status was created to encourage saving for retirement, as with 401(k)s and Individual Retirement Accounts (IRAs), and charges penalties for withdrawals made prior to age 59½. When the account holder begins taking withdrawals, which are mandated by age 70½, taxes will be paid on distributions according to ordinary income tax rates applicable at that time. Annuities can be be both qualified and non-qualified, both receiving tax-deferred status.