What is a Tax Sheltered Annuity?
What does 403(b) stand for?
What are the advantages of a TSA Plan?
Who can invest in a 403(b)?
Why do I need a TSA?
When is the best time to start a TSA?
How can I determine the amount to save that's right for me?
Do I have control over where my money is invested
Do I ever pay taxes on my TSA?
Do I have any access to my account before retirement?
What if I become disabled?
What happens when I retire?
What if I change employers?
What if I leave my employer and don't return to work?
What is a Tax Sheltered Annuity?
A Tax Sheltered Annuity or TSA is a voluntary, pre-tax, payroll deducted savings plan available only to school employees and other qualified not-for-profit organization employees. The guidelines for the 403(b) Tax Sheltered Annuity plans are explained in IRS publication 571.
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What does 403(b) stand for?
403(b) is simply the designation in the IRS regulations given to these special plans. The designation is similar to the one given to the 401(k) plans set up in ‘for-profit’ companies. However, 403(b) and 401(k) are very different types of plans.
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What are the advantages of a TSA Plan?
There are many! By making your contributions pre-tax, the federal and state governments are effectively helping you fund your account. Look at it this way: if you are in the combined 35% tax bracket it will only cost you $ 0.65 to save $1.00! And because the interest paid on your TSA account is also tax-deferred, your earnings will accumulate at a greater speed than fully-taxed accounts.
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Who can invest in a 403(b)?
A very exclusive group of people! Only employees of educational institutions and employees of most not-for-profit organizations are qualified to contribute to these programs. There are other restrictions and requirements, however, as to how much an individual can contribute.
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Why do I need a TSA?
By the very nature of most retirement programs, when you retire you will encounter a reduction of your current income. If you think you can retire and live on an income of up to 50% of what you received when you were working, then you may not need a TSA. However, if you would like to make up some or all of this difference so that you can retire and still enjoy the same or higher levels of income, then a TSA is definitely worth looking into.
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When is the best time to start a TSA?
You should start as early as possible in your career. Because of the ‘Time Value of Money,’ the longer you wait to start your TSA, the more you must put aside out of each paycheck to reach your retirement goals. If you start saving early, your contributions can be lower and have a smaller impact on your day to day living expenses. Also, because your money starts earning interest immediately, over time your interest will be earning interest and your account values will begin to increase due to compounding.
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How can I determine the amount to save that's right for me?
You need to consider many factors: your current tax picture, number of years until retirement, other pension plans, Social Security benefits, your risk tolerance and of course your overall retirement goals. Probably the best source of information is an experienced, independent representative. For over 18 years, the specialists at Reserve Financial Agency have been providing this kind of service for qualified employees. As a leading independent agency, we offer experience, knowledge, and a concern for our clients. And your exclusive Future Plan™ will help you determine your financial goals and then show you the best way you can start to achieve them. No hassles, no pressure, just good help. Our portfolio of TSA product offerings is diverse enough to fit any of your objectives.
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Do I have control over where my money is invested?
Yes. If you choose traditional annuities, your money is held on account by the insurance company who administers the annuity and these accounts carry minimum interest guarantees and are insured. Remember, the guarantees are based on the claims-paying ability of the issuing company. If you are interested in the prospect of higher returns but also at a higher risk, you can choose to invest some or all of your TSA funds in mutual funds. Keep in mind, mutual funds do not guarantee a profit and may incur a loss, including a possible loss of principal amount invested. You are in total control at all times, however, of where your money invested.
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Do I ever pay taxes on my TSA?
Yes. When you draw your money out of your account, it will be taxed as ordinary income in the year it is received. Payments received prior to age 59 ½ may be subject to an additional 10% excise tax. Consult your tax advisor, lawyer or accountant in regards to this matter.
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Do I have any access to my account before retirement?
Normally you are prevented from withdrawing money out of your account before retirement unless you are transferring it to another TSA. However, many TSA plans do offer a loan provision. Typically, you have 5 years to repay the loan. If you are buying your primary home, that repayment period is usually extended. Loans may also have interest added onto the original borrowed amount.
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What if I become disabled?
There are provisions for you to access your money without penalty if you become permanently disabled and cannot return to work.
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What happens when I retire?
As you approach retirement, make plans to meet with your agent to review your plan. In general, all it takes is little bit of paperwork and you will soon start receiving your TSA disbursements.
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