Which statement about a Tax Sheltered Annuity (TSA) is correct?

Which statement about a Tax Sheltered Annuity (TSA) is correct?

• A. It is used in an IRS-qualified retirement plan; contributions are pre-tax and grow tax-deferred; withdrawals are taxed as ordinary income.
• B. It is a non-qualified savings vehicle with taxable contributions and gains.
• C. It guarantees a minimum rate of return on the account value.
• D. It cannot be used in public schools or churches.

Answer: (A)

Tax Sheltered Annuity is an IRS-qualified retirement arrangement (commonly a 403(b) plan) used by employees of public schools and certain non-profit organizations, including churches. The key tax features are that contributions are made with pre-tax dollars, reducing current taxable income, and the investment grows tax-deferred until withdrawal. When you take distributions in retirement, the money is taxed as ordinary income. This aligns with the statement describing TSA as IRS-qualified with pre-tax contributions, tax-deferred growth, and withdrawals taxed as ordinary income. The other points are not correct: a TSA is designed for public schools and churches; it does not guarantee a minimum return; and it is a qualified plan rather than a non-qualified savings vehicle.

Tax Sheltered Annuity is an IRS-qualified retirement arrangement (commonly a 403(b) plan) used by employees of public schools and certain non-profit organizations, including churches. The key tax features are that contributions are made with pre-tax dollars, reducing current taxable income, and the investment grows tax-deferred until withdrawal. When you take distributions in retirement, the money is taxed as ordinary income. This aligns with the statement describing TSA as IRS-qualified with pre-tax contributions, tax-deferred growth, and withdrawals taxed as ordinary income. The other points are not correct: a TSA is designed for public schools and churches; it does not guarantee a minimum return; and it is a qualified plan rather than a non-qualified savings vehicle.