Tax Sheltered Annuity
Congress recognized the importance to our society of certain professions, including teaching, and the important role played by nonprofit organizations. Therefore, a tax break was granted in the form of a special retirement plan – a 403(b) plan..
The employer must sponsor a 403(b) plan, but installing and maintaining a typical TSA program is relatively simple and straightforward compared to other types of retirement plans. As the name Tax-Sheltered Annuity implies, contributions made on your behalf are not currently taxed, with income tax deferred until the premium and interest earned are withdrawn at retirement.
To illustrate the tax advantage of a 403(b) plan, suppose you are a teacher earning $35,000 this year. If you elect to put $5,000 in a Tax Sheltered Annuity through a salary reduction agreement, you will pay income tax on only $30,000, with the tax on the $5,000 contribution deferred until you withdraw the money at retirement. Both your contributions and the interest earned are tax-deferred until retirement, compounding the powerful tax advantage of a TSA.
Tax Sheltered Annuity
