403(b) Tax-Sheltered Annuity Plan Overview

403(b) Tax-Sheltered Annuity Plan Overview



A 403(b) plan (also called a tax-sheltered annuity or TSA plan) is a retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations. Employees save for retirement by contributing to individual accounts. Employers can also contribute to employees’ accounts.

A 403(b) plan (tax-sheltered annuity plan or TSA) is a retirement plan offered by public schools and certain charities. It’s similar to a 401(k) plan maintained by a for-profit entity. Just as with a 401(k) plan, a 403(b) plan lets employees defer some of their salary into individual accounts. The deferred salary is generally not subject to federal or state income tax until it’s distributed. However, a 403(b) plan may also offer designated Roth accounts. Salary contributed to a Roth account is taxed currently, but is tax-free (including earnings) when distributed.

Eligible employers are a:

  • public school, college, or university,
  • church; or
  • charitable entity tax-exempt under Section 501(c)(3) of the Internal Revenue Code

Pros and Cons:

  • Flexibility in contributions
  • Investment options are limited to those chosen by the employer
  • may have high administrative costs
  • optional loans and hardship distributions add flexibility for employees

  • Who contributes

    Employee salary deferrals; employer may contribute.

    Contribution limits

    Total contributions to each employee’s 403(b) account or annuity are limited.

    Filing requirements

    Certain 403(b) plans may be subject to annual Form 5500 filing requirements.

    Participant loans

    Permitted if the terms of the plan allow loans.

    In-service withdrawals

    Yes, but subject to possible 10% penalty if under age 59-1/2.


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