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.
Key benefits of a TSA:
You do not pay taxes on the earnings in your TSA until withdrawal.
Because your TSA contributions are made with pre-tax dollars, they are excluded from your current taxable income. That means you may pay less in current federal income taxes as well as most states' income taxes.
You can invest your TSA funds in fixed and variable annuities and mutual funds.
Most TSA plans allow you to borrow from the funds in your TSA at a low interest rate.
Other important features of a TSA:
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.
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.
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.
You are required to start making withdrawals from your TSA after age 70 1/2 unless you are still employed.
Tax services are not offered through, or supervised by Lincoln Investment.
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.