Which statement BEST distinguishes a qualified retirement plan (such as a 401(k)) from a non-qualified deferred annuity for federal income tax purposes?

Explanation

A qualified plan under IRC §401(a), §401(k), §403(b), or §457 receives 'front-end' tax favor: contributions go in pre-tax (deductible or excluded from W-2 income), grow tax-deferred, and are taxed in full on distribution because no basis was created. A non-qualified annuity is funded with AFTER-TAX dollars — contributions are not deductible — but earnings grow tax-deferred, and only the gain portion of distributions is taxed (cost-recovery via the exclusion ratio at annuitization, or LIFO for non-annuitized withdrawals under §72(e)). The statement that both arrangements allow a deduction and create no basis is wrong — non-qualified annuity premiums are never deductible. The statement that neither is subject to lifetime required minimum distributions is wrong — qualified plans require RMDs at age 73 under §401(a)(9). And the statement that qualified withdrawals are entirely tax-free while the annuity owner is taxed even on his own basis is reversed — qualified withdrawals are taxable, not tax-free.