How Much May I Contribute to My TSA?

The Maximum Exclusion Allowance calculation was repealed effective January 1, 2002. You can now contribute 100% of your compensation subject to the elective deferral limit of $15,500 for 2007.

For individuals age 50+, an additional $5,000 can be contributed for 2007 making the deferral limit $20,500.

How Much May I Contribute to My TSA?

Tax Sheltered Annuity - What are the Advantages of Participating in a TSA?

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made on your behalf are not currently taxed, with income tax deferred until the premium and interest earned are withdrawn at retirement.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

What is a Tax-Sheltered Annuity?

A Tax-Sheltered Annuity (TSA) is otherwise known as a 403(b) plan, named after a section of the Internal Revenue Code. It is an employer sponsored retirement savings program. Participation is limited by law to employees of public educational organizations and certain nonprofit organizations. The vast majority of participants are teachers in public schools, colleges and universities.

Contributions to a TSA are made for the participating employee by his or her employer. The money that is contributed to the TSA comes either from employer contributions – which are called non-elective deferrals, or from employee contributions, called elective deferrals.

Elective deferrals are deducted from the participant’s paycheck and forwarded to the insurance company or mutual fund custodian selected by the participant. The participant signs a salary reduction agreement, giving the employer the authority to make the paycheck deduction and remit it to the chosen company. Most TSA contributions are elective deferrals, meaning that the participating employee supplies the money to make the contributions.