Tax-Sheltered Annuity
Candlefocus EditorThe Internal Revenue Service (IRS) taxes the withdrawals from a TSA plan but not the contributions. This means that the employee is allowed to contribute to the plan without any taxation up to certain IRS limits. After retirement, when the employee starts making withdrawals, they are taxed as income.
TSA plans offer lower fees and the potential for higher returns than other retirement plans and investments. Employees using a TSA plan should consider that employer contributions are also part of the plan and are not taxed, as long as they are within the IRS limits. The employee should also keep in mind that there are restrictions and other factors that must be considered before enrolling in a TSA plan.
Charities, religious organizations, and other nonprofits are eligible to offer employees tax-sheltered annuities. These groups and institutions are exempt from federal income tax, which makes them eligible to offer TSA plans to their employees.
For example, some public school teachers can enroll in a TSA plan to save for retirement, as long as their schools are approved by the IRS for such a plan. Similarly, religious organizations, as long as they meet IRS requirements, can also offer TSA plans to their employees.
In conclusion, a tax-sheltered annuity is an invaluable retirement savings tool for eligible employees of public schools and tax-exempt charities, religious organizations, and other nonprofits. It allows employees to invest income before taxes into a retirement plan, offering lower fees and the potential for higher returns than other retirement plans. In addition, employers of qualifying organizations can also contribute to the plan, which add to the employee’s retirement savings tax-free.