what is a tax sheltered annuity tsa 
a tax sheltered annuity tsa is a type of investment vehicle that lets an employee make pretax contributions into a retirement account from income because the contributions are pretax the internal revenue service irs does not tax the contributions and related benefits until the employee withdraws them from the plan since the employer can also make direct contributions to the plan the employee gains the benefit of having additional tax free funds accruing 1understanding tax sheltered annuities tsas the 403 b plan is a tax sheltered annuity in the u s 2 this plan provides employees of certain nonprofit and public education institutions with a tax sheltered method of saving for retirement there is usually a maximum amount that each employee can contribute to the plan but sometimes there are catch up provisions that allow employees to make additional contributions to make up for previous years when they did not maximize contributions 3the irs caps contributions to tsas at 22 500 for tax year 2023 increasing to 23 000 for 2024 which is the same cap as 401 k plans tsas also offer a catch up provision for participants aged 50 or over which totals 7 500 each year for 2023 and 2024 34tax sheltered annuities also include a lifetime catch up for participants who have worked for a qualified organization for 15 years or more and whose average contribution level never exceeded 5 000 over that period including the contribution catch up provisions and an employer match the total contribution cannot exceed 100 of earnings up to a certain cap 56all qualified retirement plans require that withdrawals begin only after the age of 59 early withdrawals may be subject to a 10 irs penalty unless certain exemptions apply the irs taxes withdrawals as ordinary income and requires them to start no later than the year the beneficiary turns 72 up from 70 after the enactment of the setting every community up for retirement enhancement secure act in 2019 7depending on the employer s or plan provider s provisions employees may access funds before age 59 via a loan as with most qualified retirement plans they may also permit withdrawals if the employee becomes disabled 8tax sheltered annuities tsas vs 401 k planspeople often compare tsas to 401 k plans the biggest similarity is that both plans represent specific sections of the internal revenue code irc that establish qualifications for their use and their tax benefits both plans encourage individual savings by allowing for pretax contributions toward accumulating retirement savings on a tax deferred basis 9from there the two plans diverge notably 401 k plans are available to any eligible private sector employee who works for a company with a plan 10 tsa plans are reserved for employees of tax exempt organizations and public schools nonprofit organizations that exist for charitable religious or educational purposes and are qualified under section 501 c 3 of the irc can offer tsa plans to employees 1