A qualified annuity is a financial product that accepts and grows funds, and is funded with pre-tax dollars. "Qualified" is a descriptor given by the Internal Revenue Service (IRS) to indicate that the qualified annuity may be eligible for tax deduction. When a distribution is made, it is subject to income tax.
A qualified annuity differs from a non-qualified annuity, which is an annuity funded with after-tax dollars. While distributions from a qualified annuity are taxed as income, distributions from a non-qualified annuity are not subject to income tax in their entirety. Qualified annuities are often set up by employers on behalf of their employees as part of a retirement plan.