What Does Tax-Sheltered Annuity Mean?
A tax-sheltered annuity (TSA) is a retirement plan for non-profit organizations, such as schools, hospitals, charities, and churches. These organizations can set up a TSA program for their employees so they can save for retirement. When an employee makes a contribution, they get a tax deduction for it. This plan also delays taxes on their investment earnings until the employee retires and starts making withdrawals.
A tax-sheltered annuity is also known as a tax-deferred annuity.
Insuranceopedia Explains Tax-Sheltered Annuity
A tax-sheltered annuity is the non-profit version of the 401(k). Because of the way the tax code is set up, the non-profit sector had to design a separate program. In practice though, the two retirement plans are nearly identical.
A worker can only use a TSA if their employer offers one. They cannot set up a plan individually. From there, the amount they can contribute every year also depends on how the plan is set up. Some employers also offer a matching contribution to the TSA to give employees more compensation and encourage them to save more.