We use cookies to improve security, personalize the user experience,
enhance our marketing activities (including cooperating with our marketing partners) and for other
business use.
Click "here" to read our Cookie Policy.
By clicking "Accept" you agree to the use of cookies. Read less
What is a Tax-Sheltered Annuity and How Does It Benefit You?
Definition & Meaning
A tax-sheltered annuity is a retirement savings plan designed for employees of tax-exempt organizations, such as public schools and non-profit entities. This plan allows participants to contribute a portion of their income on a pre-tax basis, meaning that taxes on these contributions and any earnings are deferred until withdrawal. Often referred to as a Section 403(b) plan, this annuity can also include contributions from employers, enhancing the retirement savings of employees. While there is a limit on how much employees can contribute, catch-up provisions may allow for additional contributions to make up for any shortfalls in previous years.
Table of content
Legal Use & context
Tax-sheltered annuities are primarily used in the context of retirement planning for employees of tax-exempt organizations. They fall under the category of employee benefits and are governed by federal regulations, specifically Section 403(b) of the Internal Revenue Code. Legal professionals may encounter these plans when advising clients on retirement options, tax implications, or estate planning. Users can manage their contributions and withdrawals using legal forms provided by services like US Legal Forms.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A teacher at a public school contributes $5,000 annually to their tax-sheltered annuity. This amount is deducted from their salary before taxes, allowing them to save for retirement while reducing their taxable income.
Example 2: An employee of a non-profit organization has not maximized their contributions in previous years. They utilize catch-up provisions to contribute an additional $2,500 in their final year of eligibility, increasing their retirement savings significantly. (hypothetical example)
Relevant laws & statutes
Tax-sheltered annuities are primarily governed by Section 403(b) of the Internal Revenue Code. This section outlines the rules and regulations surrounding contributions, withdrawals, and tax implications for these retirement plans. Additional regulations may come from the Employee Retirement Income Security Act (ERISA) if applicable.
Common misunderstandings
What to do if this term applies to you
If you are eligible for a tax-sheltered annuity, consider enrolling and determining how much you can contribute. Review your employer's plan details and consult with a financial advisor to maximize your benefits. You can also explore US Legal Forms for templates related to retirement planning and contributions. If your situation is complex, seeking professional legal assistance may be beneficial.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.