Tax Sheltered Annuity Plans For Retirement

Tax Sheltered Annuity, or simply a TSA, is a plan that permits employees of public organizations to contribute some amount every month, without paying taxes on it. So, the contributor can invest of part of his gross annual income toward a tax-sheltered plan (403(b) or TSAs). People who are eligible to contribute toward such plan includes employees in public schools (1 to 12), universities, colleges, churches, charity organizations, and libraries.

The contributor must keep investing in this plan until the age of retirement (59 ½ years) to receive tax benefits. If he withdraws money after retirement age, taxes applicable on such withdrawals are comparatively low. The funds toward which the contributor has to pay is usually chosen by the employer.

Quite similar to other retirement plans, transfer to other plans or early withdrawals attract penalties. The ‘holding period’ generally ranges from 7 to 10 years. And if you want to avoid withdrawal or surrender charges, make sure you don’t withdraw money before this period. Once you have exceeded this period, you can transfer or withdraw funds without any charges. However, remember that transferring such funds is a lengthy and complicated process, as it involves lots of paperwork.

Besides, before you plan to transfer funds from tax sheltered annuity plan, make sure you read rules set by IRS. They have, in 2009, restricted the plans to which you can transfer these funds. Also, most employers have their own restrictions on such transfers.

Unlike olden days, employees now have better transparency regarding such plans offered by employers. Many employers also offer various options to choose from. You can also transfer this funds from one tax sheltered annuity plan to another, when you change your employer, provided the latter (new employer) accepts such transfer.

If you are an eligible employee, you can enroll in this plan at any time. Besides, you can contribute any amount, regardless of how much you employer agrees to pay.