Qualified / Tax-Deferred
A Qualified account (e.g., Traditional 401k, IRA, 403b, SEP, 457b) is funded with pre-tax dollars. The IRS deferred the tax when you contributed. When you withdraw money in retirement, you will owe ordinary income tax on every dollar you take out.
Non-Qualified / After-Tax
A Non-Qualified account (e.g., Brokerage account — cost basis/principal, Savings accounts, CDs) is funded with after-tax dollars. Because you already paid tax on those contributions, no additional income tax is owed on those withdrawals in this model.
Roth / Tax-Free
A Roth account (e.g., Roth IRA, Roth 401k, Roth 403b) is funded with after-tax dollars and grows tax-free. Qualified withdrawals in retirement are completely tax-free and Roth accounts are not subject to Required Minimum Distributions (RMDs), making them the most efficient long-term asset to preserve.
This model draws from your accounts in the optimal tax order: Non-Qualified first (tax-free, spend taxable brokerage/savings first), then Qualified (taxable income, drawn second), and Roth last (tax-free, preserved longest for maximum tax-free growth).
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