What Is Tax Sheltered Annuity (TSA) Or 403(b) Program?
TSA is a program that helps individuals save money on their retirement by sheltering them from taxes. This very program is created for the employees of non-profit organizations (i.e. schools, colleges, universities etc.). Unlike other Individual Retirement plans (IRA, 401(k)) TSAs have a specific contract term, i.e. 10 years. When you retire, you start getting monthly payments from the annuity or you can choose to put your annuity balance into another investment vehicle. TSA provides the following opportunities:
1. Shelter your income from taxes until retirement. 2. Benefit from tax-deferred investment growth. 3. Choose the companies you want to invest to yourself. 4. Use simple payroll deduction. 5. Get a possibility to access your money through withdrawals and loans. In practice the program helps you lower your taxable income, because your contributions are made before income taxes are calculated. This means that you will have to pay less current taxes. While staying in your account, the investments are also sheltered from taxes. For instance, an individual earns $35 000 annually and contributes 15% of his income to TSA program (which makes $5 250), than his taxable income is $29 750 instead of $35 000. Tax deferral allows you to delay paying taxes until the time you withdraw money from your account. As a rule, when you retire you have lower income, and thus you are in a lower tax bracket, that's why your taxes will be considerably lower. Another advantage of TSA is the possibility of an early withdrawal in case of emergency. Moreover, some of the plans allow withdrawing money from your account to send children to college or to buy a new house. Who can participate? In general all employees (except some student classifications) can participate in TSA program. One an applicant to the program has chosen a company; he/she has to fill in the application form. Why choose TSA? Previous generations of the Americans depended on Social Security to save money on their retirement. Social Security works alike all the other individual retirement plans. Each worker of the country pays certain amount of his/her income into the national fund that makes monthly payment to the retired workers, the disabled ones etc. The major problem with the fund is that the payments contributed by a worker are not separated from the other workers' payments thus making a united fund. Nowadays the demographic situation has completely changed and more funds are being paid each year than are being contributed. That's why the government is encouraging the employees so save for their retirement individually. And among a great lot of such programs TSAs seem to be the most profitable. Besides saving for one's retirement it helps to shelter income from taxes. |