Tax protected Annuity TSA 403b – What is It?

Tax protected Annuity TSA 403b – What is It?

Tax-protected Annuity (TSA), also known as a 403(b), is an different retirement savings plan. Not everyone can participate in this plan, and it is restricted to those who are employed by educational, cultural, or non-profit organizations such as religious groups (also known as 501 (c)(3) organizations).


Contributions to a Tax-protected Annuity are done by a payroll deduction and are consequently taken out pre-tax. This characterize of a Tax-protected Annuity is very advantageous since your contributions are not seen as income and you may pay less federal tax at the end of the year. A Tax-protected Annuity is also tax deferred during the accumulation phase. This method you will not pay any taxes on the amount you contribute or the interest earned until you begin the withdrawal phase.

If your plan allows, you may elect to contribute post-tax money to your Tax-protected Annuity by using your paycheck. Any money you contribute post-tax must be declared on your income tax return and is not unprotected to the tax-deferred exemption. When selecting a Tax-protected Annuity you may choose between fixed and variable, or a combination of the two.

It is possible to take loans from your Tax-protected Annuity, but these loans are limited to the lesser of $50,000 or fifty percent of your vested amount. Another characterize of a Tax-protected Annuity is the ability to rollover funds into other investment options. For example, it is possible to use your 403(b) to fund your 401(k), Individual Retirement Account (IRA), or another 403(b).

It is important to check any contribution limits or rules established by the new plan administrator before committing to a rollover. If you die before receiving payments, your beneficiaries are entitled to similar options using your Tax-protected Annuity. A spouse is entitled to all of the aforementioned options, while a non-spouse is extremely from using your annuity money to fund an IRA. A non-spouse beneficiary is only able to move funds from one 403(b) to another.


Unlike a regular deferred annuity, there are maximum contribution limits determined by the Internal Revenue Service (IRS) for each year. Beginning in 2006 the maximum personal (elective) contribution limit was increased to $15,000 per year, up from $14,000 in 2005. Also in 2006, your employer (non-elective) may choose to contribute to your Tax-protected Annuity with a combined maximum contribution limit of $ 44,000.

You may be able to contribute up to $5000 more per year if you are age 50 or older and an additional $3000 per year if you have been with the same company for more than fifteen years. Failure to comply with these contribution limits can consequence in additional taxes and penalties for both the employee and contributing employer.


As with the deferred annuity, a Tax-protected Annuity is used to supplement retirement income. If you decide to withdraw money prior to age 59 ½ you will be unprotected to a ten percent penalty by the IRS in addition to the standard income tax. There are a few exceptions to paying this penalty, although specific criteria must be met.

If you leave the service, encounter extreme and immediate financial hardship, or become disabled you can avoid paying the ten percent penalty. Although the ten percent penalty is not enforced in these situations, you are nevertheless responsible for paying income tax on the money you withdraw. You must begin taking minimum payments from your Tax-protected Annuity in either the same year as your retire or by age 70 ½, whichever comes first.

Failure to do so will consequence in a fifty percent excise tax on the money you should be receiving. The only exception to this age restriction pertains to all contributions made to a Tax-protected Annuity prior to January 1, 1987. Anyone who paid into a Tax-protected Annuity before this date is allowed to defer withdrawal until age 75. If you die before the withdrawal period your beneficiaries may receive payouts from your Tax-protected Annuity without paying the ten percent penalty, but they are nevertheless responsible for the income taxes.

Regulations on tax compliance change every few years to adjust to inflation rates, and it is important to familiarize yourself with these changes to avoid penalties from the IRS. Helpful resources including articles, worksheets, and an updated FAQ page can be located at and search for keywords “tax protected annuity.”

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