The policy name may be followed by Q or NQ, indicating that the policy is open only to qualified or non-qualified retirement plans, respectively. If the policy name is not marked with a Q or NQ, then it is open to both retirement plans. Under a qualified plan, and investor may invest in the variable annuity with pretax dollars through an employee pension plan, such as a 401(k) or 403(b). Money builds up on a tax-deferred basis, and when the qualified investor makes a withdrawal or annuitizes, all contributions received are taxable income. A non-qualified account, on the other hand, is available only for after-tax dollars. Once again, money builds up tax-deferred, but upon annuitization only the gain, not the initial investment, is taxable income. Morningstar includes Q or NQ only if the insurance company sponsoring the policy varies its fees based on the investor�s qualification status.
The qualified initial purchase amount may not always apply to specialized plans such as IRAs, payroll-deduction plans, government-allotment plans, and deferred-compensation plans. Moreover, many Variable Annuity sponsors will accept a much lower minimum initial purchase amount than is stated if the investor participates in a dollar-cost-averaging plan.