Individual Retirement Accounts
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Virginia 403(b) TSA Tax Sheltered Annuity
Virginia Annuity Resource is part of Maryland Annuity Resource and offers 403(b) TSA plans to all qualified people and entities in 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.
1. 403(b) Plan Basics
Table of Contents
- What Is a 403(b) Plan?
- What Are the Benefits of Contributing to a 403(b) Plan?
- Who Can Participate in a 403(b) Plan?
- Who Can Set Up a 403(b) Account?
- How Can Contributions Be Made to My 403(b) Account?
- Do I Report Contributions on My Tax Return?
- How Much Can Be Contributed to My 403(b) Account?
This chapter introduces you to 403(b) plans and accounts. Specifically, the chapter answers the following questions.
- What is a 403(b) plan?
- What are the benefits of contributing to a 403(b) plan?
- Who can participate in a 403(b) plan?
- Who can set up a 403(b) account?
- How can contributions be made to my 403(b) account?
- Do I report contributions on my tax return?
- How much can be contributed to my 403(b) account?
Individual accounts in a 403(b) plan can be any of the following types.
- An annuity contract, which is a contract provided through an insurance company,
- A custodial account, which is an account invested in mutual funds, or
- A retirement income account set up for church employees. Generally, retirement income accounts can invest in either annuities or mutual funds.
- The first benefit is that you do not pay income tax on allowable contributions until you begin making withdrawals from the plan, usually after you retire. Allowable contributions to a 403(b) plan are either excluded or deducted from your income. However, if your contributions are made to a Roth contribution program, this benefit does not apply. Instead, you pay income tax on the contributions to the plan but distributions from the plan (if certain requirements are met) are tax free.
Note. Generally, employees must pay social security and Medicare tax on their contributions to a 403(b) plan, including those made under a salary reduction agreement. See chapter 4, Limit on Elective Deferrals , for more information.
- The second benefit is that earnings and gains on amounts in your 403(b) account are not taxed until you withdraw them. Earnings and gains on amounts in a Roth contribution program are not taxed if your withdrawals are qualified distributions. Otherwise, they are taxed when you withdraw them.
- The third benefit is that you may be eligible to take a credit for elective deferrals contributed to your 403(b) account. See chapter 10,Retirement Savings Contributions Credit (Saver’s Credit) .
- Employees of tax-exempt organizations established under section 501(c)(3). These organizations are usually referred to as section 501(c)(3) organizations or simply 501(c)(3) organizations.
- Employees of public school systems who are involved in the day-to-day operations of a school.
- Employees of cooperative hospital service organizations.
- Civilian faculty and staff of the Uniformed Services University of the Health Sciences.
- Employees of public school systems organized by Indian tribal governments.
- Certain ministers (explained next).
- Ministers employed by section 501(c)(3) organizations.
- Self-employed ministers. A self-employed minister is treated as employed by a tax-exempt organization that is a qualified employer.
- Ministers (chaplains) who meet both of the following requirements.
- They are employed by organizations that are not section 501(c)(3) organizations.
- They function as ministers in their day-to-day professional responsibilities with their employers.
Throughout this publication, the term chaplain will be used to mean ministers described in the third category in the list above.
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.
The following types of contributions can be made to 403(b) accounts.
- Elective deferrals . These are contributions made under a salary reduction agreement. This agreement allows your employer to withhold money from your paycheck to be contributed directly into a 403(b) account for your benefit. Except for Roth contributions, you do not pay income tax on these contributions until you withdraw them from the account. If your contributions are Roth contributions, you pay taxes on your contributions but any qualified distributions from your Roth account are tax free.
- Nonelective contributions . These are employer contributions that are not made under a salary reduction agreement. Nonelective contributions include matching contributions, discretionary contributions, and mandatory contributions from your employer. You do not pay income tax on these contributions until you withdraw them from the account.
- After-tax contributions . These are contributions (that are not Roth contributions) you make with funds that you must include in income on your tax return. A salary payment on which income tax has been withheld is a source of these contributions. If your plan allows you to make after-tax contributions, they are not excluded from income and you cannot deduct them on your tax return.
- A combination of any of the three contribution types listed above.
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.
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.