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A 403(b) tax-sheltered annuity (TSA) is a long-term retirement savings program offered to
employees of certain educational and non-profit organizations. You put money into an annuity
contract and, in exchange, your TSA Company agrees to pay you an income in the future. The
contributions you make to a TSA contract, as well as any earnings, accumulate on a tax-deferred
basis until you begin receiving annuity payments at retirement.
The 403(b) plan provides tax deferral. The use of an annuity in a qualified plan does not provide
necessary or additional tax deferral and should be chosen for features and benefits other than tax
deferral.
During your working years, you contribute money to an annuity on a pre-tax basis
through payroll deduction. Any growth is tax-deferred. When you retire, the
savings and earnings from your TSA may be withdrawn to help supplement a
comfortable retirement.
Tax-deferred means that you postpone paying taxes on the amount
you contribute to your TSA and the earnings until you start taking money out of
your annuity contract (usually after you retire). The tax-deferral component of
the Internal Revenue Code 403(b) enables you to reduce your current income taxes
while you accumulate money for your retirement.
You are eligible to participate in a TSA if you work for an
organization that offers a 403(b) retirement program.
- A public school system (university, elementary, or high school).
- Other tax-exempt organizations qualified under Internal Revenue Code section 501(c)(3).
This may include hospitals, zoos, private schools, private colleges and
universities, museums, arts organizations, religious organizations, and
research and charitable foundations.
This Web site is not intended or written to be used as
legal or tax advice. As a taxpayer, you cannot use it
for the purpose of avoiding penalties that may be imposed
under the tax laws. You should seek advice on legal or tax
questions based on your particular circumstances from an
independent attorney or tax advisor.
*Statistics compiled from the 2004 Retirement
Confidence Survey, Employee Benefit Research
Institute; and "Coming Up Short: The Challenge of 401(k) Plans," Alicia Munnell
and Annika Sunden
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