Tax-Sheltered Annuity

AAA

DEFINITION of 'Tax-Sheltered Annuity'

A type of annuity that allows an employee to make contributions from his or her income into a retirement plan. The contributions are deducted from the employee's income and, as a result, the contributions and related benefits are not taxed until the employee withdraws them from the plan. Because the employer can also make direct contributions to the plan, the employee gains the benefit of having additional tax-free funds accruing.

INVESTOPEDIA EXPLAINS 'Tax-Sheltered Annuity'

In the U.S., one specific tax-sheltered annuity is the Internal Revenue Code's Section 403(b) plan. This plan provides employees of certain non-profit and public education institutions the benefit of having a tax-sheltered method of saving for retirement.

There is usually a maximum amount that an employee can contribute to the plan, but sometimes there are "catch-up" provisions that allow employees to make additional contributions to make up for previous years where they did not make the maximum contribution.

RELATED TERMS
  1. Tax-Deferred Savings Plan

    A savings plan or account that is registered with the government ...
  2. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt ...
  4. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  5. Annuity Unit

    An accumulation unit for which the annuitant has annuitized their ...
  6. Individual Retirement Annuity

    A retirement investment vehicle that is structured similarly ...
RELATED FAQS
  1. How does a pension income drawdown work?

    While there are similar drawdown plans in the United States, a pension income drawdown plan most commonly refers to a specific ... Read Full Answer >>
  2. What is the difference between a bond's yield rate and its coupon rate?

    An annuity is an investment in which a person receives a fixed sum of money annually. Coupon payments received by a bondholder ... Read Full Answer >>
  3. What is fiduciary liability insurance, and what are its benefits?

    Under the Employee Retirement Income Security Act (ERISA), any individual who manages a employee benefit or pension plan ... Read Full Answer >>
  4. Should I purchase a master limited partnership (MLP) in my retirement account?

    Most investors should not purchase units in a master limited partnership, or MLP, in their retirement accounts. MLPs offer ... Read Full Answer >>
  5. How should I invest the money I keep on my IRA?

    For individuals who are just starting to save, certificates of deposit can be a good place to start, but the interest rates ... Read Full Answer >>
  6. Why choosing the right investment advisor is crucial for your portfolio's health

    Just as finding a good mechanic will help keep your car running smoothly, finding a good broker or financial advisor can ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    Explaining Types Of Fixed Annuities

    Learn about this popular retirement tool, its pros and cons and how annuities work to create a guaranteed regular stream of retirement income.
  2. Home & Auto

    An Overview Of Annuities

    These contracts provide a guaranteed income stream. Learn how they work and their benefits.
  3. Retirement

    403(b) Plan Tutorial

    Learn about the set-up, the contributions to and the distributions from this retirement plan for certain employees of public schools and tax-exempt organizations.
  4. Professionals

    Help Parents Avoid This Retirement Savings Blunder

    Parents should make saving for their own retirement a priority over helping with their children’s college costs.
  5. Investing

    Financial Gifts For Grads: Kindergarten To College

    If you really want to help your grad preparing for the future, consider a present that supports their long-term goals—an early start to financial planning.
  6. Professionals

    5 Signs That You Have a Lousy 401(k) Plan

    Knowing whether a 401(k) plan is good or not so good is important. This will help participants decide how much to invest and when to demand improvements.
  7. Entrepreneurship

    Why Small Business Owners Need Financial Advisors

    Small business owners are too busy to effectively manage their own money. That's why a financial advisor can be a big help.
  8. Professionals

    401(k) Risks Advisors Should Know About

    Lawsuits are challenging the the fiduciary duty of plan sponsors related to 401(k) fees. Here's what financial advisers should know.
  9. Professionals

    Why Doing Your Taxes is Good Retirement Planning

    Income tax time is a great time to reevaluate retirement planning, since all the information you need is right at your fingertips.
  10. Professionals

    Is ‘Free’ Now the Best Price for Online Advice?

    For many investors, robo-advisors may be a better deal than traditional financial advisors, though they should know what kind of tradeoffs are involved.

You May Also Like

Hot Definitions
  1. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  2. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  3. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  4. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
Trading Center