What is a 403(b) Tax Sheltered Annuity plan?
403(b) Tax Sheltered Annuity in Maryland, Washington D.C. and Virginia
We believe that a 403(b)TSA plan is the foundation to any investment portfolio if you are qualified. Below are all of the nuances and plan details of these types of plans. We offer Annuity versions of these plans so please take the time to see all of the information as outlined by the IRS.
A 403(b) tax-sheltered annuity (TSA) plan is a retirement plan, similar to a 401(k) plan, offered by public schools and certain 501(c)(3) tax-exempt organizations. An individual may only obtain a 403(b) annuity under an employer’s TSA plan.
Table of Contents
This chapter introduces you to 403(b) plans and accounts. Specifically, the chapter answers the following questions.
A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers.
Individual accounts in a 403(b) plan can be any of the following types.
We use the term “403(b) account” to refer to any one of these funding arrangements throughout this publication, unless otherwise specified.
There are three benefits to contributing to a 403(b) plan.
Excluded. If an amount is excluded from your income, it is not included in your total wages on your Form W-2. This means that you do not report the excluded amount on your tax return.
Deducted. If an amount is deducted from your income, it is included with your other wages on your Form W-2. You report this amount on your tax return, but you are allowed to subtract it when figuring the amount of income on which you must pay tax.
Any eligible employee can participate in a 403(b) plan.
Eligible employees. The following employees are eligible to participate in a 403(b) plan.
Ministers. The following ministers are eligible employees for whom a 403(b) account can be established.
Throughout this publication, the term chaplain will be used to mean ministers described in the third category in the list above.
A minister employed as a chaplain by a state-run prison and a chaplain in the United States Armed Forces are eligible employees because their employers are not section 501(c)(3) organizations and they are employed as ministers.
You cannot set up your own 403(b) account. Only employers can set up 403(b) accounts. A self-employed minister cannot set up a 403(b) account for his or her benefit. If you are a self-employed minister, only the organization (denomination) with which you are associated can set up an account for your benefit.
Generally, only your employer can make contributions to your 403(b) account. However, some plans will allow you to make after-tax contributions (defined below).
The following types of contributions can be made to 403(b) accounts.
Self-employed minister. If you are a self-employed minister, you are considered both an employee and an employer, and you can contribute to a retirement income account for your own benefit.
Generally, you do not report contributions to your 403(b) account (except Roth contributions) on your tax return. Your employer will report contributions on your 2012 Form W-2. Elective deferrals will be shown in box 12 and the Retirement plan box will be checked in box 13. If you are a self-employed minister or chaplain, see the discussions next.
Self-employed ministers. If you are a self-employed minister, you must report the total contributions as a deduction on your tax return. Deduct your contributions on line 28 of the 2012 Form 1040.
Chaplains. If you are a chaplain and your employer does not exclude contributions made to your 403(b) account from your earned income, you may be able to take a deduction for those contributions on your tax return.
However, if your employer has agreed to exclude the contributions from your earned income, you will not be allowed a deduction on your tax return.
If you can take a deduction, include your contributions on line 36 of the 2012 Form 1040. Enter the amount of your deduction and write “403(b)” on the dotted line next to line 36.
There are limits on the amount of contributions that can be made to your 403(b) account each year. If contributions made to your 403(b) account are more than these contribution limits, penalties may apply.
Worksheets are provided in Chapter 9 to help you determine the maximum amount that can be contributed to your 403(b) account each year.Chapter 7, Excess Contributions , describes how to prevent excess contributions and how to get an excess contribution corrected.