Non-Qualifying Investment

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Definition: Non-Qualifying Investment

Non qualifying investment is an investment which does not qualify for any level of the tax deferred or a tax exempt status. Investments under this type are made with the money remaining after paying taxes. These investments are purchased & held in the tax deferred accounts, plans or the trusts. Returns from such investments are taxable on a yearly basis. The main difference between a qualified and a nonqualified investment account is the tax treatment of deductions by the employer.

Example: Some examples of the investments which generally do not qualify for the tax exempt status are the collectibles, antiques, arts, jewelries and the precious metals. Some other investments which may not qualify for any sort of the tax precedence include investments in the real estate investment trusts, bonds, stocks or any other traditional investments option which is not bought under the qualifying investments plan or trust.

These investments are not eligible for the tax deferral benefits. Consequently, for the non-qualified plans, deducted contributions are taxed after the income is recognized. Generally, it refers to when the employees must pay the income taxes on the benefits associated with their employment. These investments do not receive any preferential tax treatment from the internal revenue service. When money is placed into these accounts, taxes are charged on it similar to any other source of an income would. Numerous types of accounts constitute as the nonqualified accounts, technically any account, from a bank account to certain retirement funds, not receiving the preferential tax treatment is a non-qualified account.

Exception: Deferred annuities accounts provide a sole exception to the nonqualified accounts rule. These accounts allow the income to grow as the tax deferred in the same manner to a qualified account. But technically it constitutes as a nonqualified account.


Hence, this concludes the definition of Non-Qualifying Investment along with its overview.


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