Tax-Sheltered Annuity

What Does Tax-Sheltered Annuity Mean?

A tax-sheltered annuity (TSA), also called a tax-deferred annuity, is a retirement savings plan designed for employees of non-profit organizations such as schools, hospitals, charities, and churches. These organizations can establish TSA programs to help their employees save for retirement. Contributions made by employees are tax-deductible, and taxes on investment earnings are deferred until retirement when the employee begins making withdrawals.

Insuranceopedia Explains Tax-Sheltered Annuity

A tax-sheltered annuity (TSA) is the non-profit sector’s equivalent of a 401(k) plan. Due to differences in the tax code, non-profit organizations had to create a separate retirement program. However, in practice, TSAs and 401(k)s function similarly.

Employees can only participate in a TSA if their employer offers one; they cannot establish a plan independently. Contribution limits vary depending on the specific plan set up. Some employers also provide matching contributions to TSAs, offering additional compensation and encouraging employees to save more for retirement.