Tax-Sheltered Accounts

Employees of educational institutions and 501(c)(3) nonprofit organizations have a unique opportunity to regularly set aside money for their retirement in a tax-sheltered account. This long-term retirement account, funded through payroll deduction, is called a 403(b) tax-sheltered account, or TSA.

Although it makes infinite sense to take advantage of a 403(b) TSA program, the tax rules governing these programs are quite complicated. To help ensure that you are reaping the maximum benefits from your TSA, you should consult with a financial professional.

Features and Benefits of a TSA

Key benefits of a TSA:

Tax Deferred Earnings

You do not pay taxes on the earnings in your TSA until withdrawal.

Reduction of Current Federal Income Tax

Because your TSA contributions are made with pre-tax dollars, they are excluded from your current taxable income. That means you'll pay less in current federal income taxes as well as most states' income taxes.

Variety of Investment Options

You can invest your TSA funds in fixed and variable annuities and mutual funds.

Low-Cost Loans

Most TSA plans allow you to borrow from the funds in your TSA at a low interest rate.

Other important features of a TSA:

No Reduction in Other Retirement Benefits

You receive TSA benefits in addition to your pension and Social Security benefits. Social Security credits are not affected by your TSA contribution.


When you receive a distribution from your 403(b) program, you may elect to roll the distribution into an IRA, another 403(b) program or the plan of a subsequent employer.

High Annual Contribution Limits

Due to the tax advantages of a TSA, the government places a dollar cap on the total amount participants may contribute to the plan each year.

  • The maximum annual contribution in 2015 if you are under age 50 is $18,000 .
  • A catch-up contribution is available if you are age 50 or older by year-end; the catch-up limit is $6,000 in 2015 .
  • Plan participants with 15 or more years of service with the same employer may be eligible to contribute even more. Consult with your financial professional for details.

Withdrawals Prior to Age 59 1/2

In general, there is a 10% penalty for withdrawals prior to age 59 1/2. But there are limited exceptions to this rule. Without penalty, withdrawals may be made from your TSA prior to age 59 1/2 due to death, disability, separation of service from your organization if you are age 55 or older in the year of separation, certain medical expenses and expenses due to divorce and related situations.

Mandatory Withdrawals at Age 70 1/2

You are required to start making withdrawals from your TSA after age 70 1/2 unless you are still employed.

Lincoln Investment Icon Lincoln Investment Can Help

To help build your retirement nest egg, you need to use every tool within your reach. A403(b) TSA is an ideal way to help build tax-advantaged retirement assets. But, like most retirement plans of this caliber, the rules about contributions, distributions and other features of a TSA plan can be difficult to understand. That is why it makes sense to turn to a TSA expert for help.

Lincoln Investment is an independent full-service broker/dealer that has pioneered in serving the retirement investment needs of educators and employees of non-profit organizations since 1968. A Lincoln Investment financial advisor stands ready to assist you with your TSA retirement investment plan and to help grow your retirement assets.