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Tax Sheltered Annuity

Tax Sheltered Annuity

If somebody works for a nonprofit organization, or cultural or an educational institution, he or she may be qualified for a tax sheltered annuity. A tax sheltered annuity is tax-benefited retirement plan that impacts the individual's future.


  • Consistent Savings - Tax sheltered annuities make your retirement savings to raise constantly
  • Convenience - You can contribute into your tax sheltered annuity through payroll deductions prior to your income is taxable
  • Diversity - If you are interested investing in a variable tax-sheltered annuity, you'll be able to select from different choices by which you can raise your investments. Once, you choose an investment option, your investments will be part of professionally directed investment portfolios.
  • Good Tax Strategy - Your contribution in a tax sheltered annuity cuts the tax liabilities. Because of, you pay with pre-taxed money, you contribution is not considered as your current income. Hence, you will see that you have paid less federal income-tax at the end of a year. Basically, both your income and your contribution is tax-deferred till you withdraw the money or till the money is distributed to you. Also, as your contribution is allowed to increase and multiply tax-free, the tax sheltered annuity can yield significant amount of money when you will retire.
  • Value of tax sheltered annuities keeps on varying over time; it depends on how the investments options perform. In addition to that, when you will be in need of extra income after your retirement, tax sheltered annuities is still able to provide you with diverse options.

How a Tax Sheltered Annuity is Distributed

People usually go for tax sheltered annuity distribution on retirement; provided if they are at the age or 59 or more. if you like to go for such distributions prior to minimum age limit and if your contribution was made by means of payroll deductions, then according to IRS criteria, you should have been taken apart from the service because of either disability or hardship.

Even if early withdrawal of the tax sheltered annuity is permitted, but still you have to accept federal tax penalty of 10% on the distributions you have taken - if not you were taken apart from the service after the age of 55, select considerably equal periodic payments over you life expectancy or otherwise are disabled.

In case of your death prior to minimum age limit, the distributions could be made to the beneficiaries without the 10% federal penalty tax. If the beneficiary is your wife or your husband, your spouse may be eligible to roll death benefit proceeds to either an IRA or other similar qualified plan. This option is available to the spouses only.

Loans against a tax sheltered annuity is too permissible, the loan is however limited to lesser amount within $50,000 or 50% of the annuity holder's vested amount.

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