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Retirement Planning

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 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 403(b)

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 may 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

Some 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 2020 if you are under age 50 is $19,500.
  • A catch-up contribution is available if you are age 50 or older by year-end; the catch-up limit is $6,500 in 2020.
  • 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.

Please be aware that funds taken as part of a loan reduces your account balance and does not share in any gains or losses until loan repayments are made. If the loan is not repaid according to the terms of the loan and a default occurs, it will result in adverse tax consequences, including possible penalties.