Spending many pleasant, worry-free years in retirement is a top goal for just about everyone. We know we should be putting money aside to build a nest egg, but where can we put our hard-earned funds so that they will work hardest for us? For many Americans, the answer is
You're probably familiar with many of the popular tax favored retirement arrangements such as
If you're an employee of a tax-exempt organization (as defined in Internal Revenue Code Section 501(c)(3) or a public educational organization, you may be eligible to benefit from a 403(b) plan. They're commonly referred to as Tax-Sheltered Annuities (TSAs), and they share many similarities with 401(k) plans. But only employees of certain not-for-profit organizations and public educational institutions are eligible to participate.
Since the 2001 Tax Bill, TSAs are Better than Ever
TSAs can be an excellent way to accumulate funds for a comfortable retirement for many reasons. And saving for retirement has been made easier with the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001. If you choose to participate, click here to see the annual elective deferral limits. Your pre-tax contributions are conveniently deducted from your paycheck. It's a painless way to regularly "pay yourself first," so you can be certain that you're putting some money aside for tomorrow rather than spending it all today. (A greater annual deferral may be permitted for certain long service employees.)
In addition, the Economic Growth and Tax Relief Reconciliation Act of 2001, which was signed into law on June 7, 2001, provides for special catch-up provisions for employees who are age 50 and older. These individuals can contribute an additional $4,000 in 2005 and the catch-up limit increases by $1,000, so that for 2006 and after, this special catch-up limit is $5,000.
Note: The new age 50-and-older catch-up provisions are in addition to the existing 15 year catch-up provisions. Employees of educational institutions, hospitals, religious organizations, home health service agencies, and health and welfare agencies who have completed 15 years of service with their present employer may be able to defer up to $3,000 with a lifetime catch-up maximum of $15,000.
Twin Tax Advantages
Among the key benefits of TSAs are their twin tax advantages. First, TSA contributions are made on a pre-tax basis, which lowers your current federal income tax burden. Also, TSA funds accumulate tax-deferred. TSA funds remain untaxed until you withdraw them, usually at retirement. Withdrawals prior to age 59 1/2 may be subject to income taxes and a 10% IRS penalty. Over the long haul, these two tax advantages may add a significant amount to your retirement dollars.
Although referred to as Tax-Sheltered Annuities, the funding vehicles for TSAs are not limited to annuities and may include mutual funds or life insurance in addition to annuities. And among annuities, often both fixed and variable# policies are available. This flexibility puts you in control of your investment choices. You can custom design a personal retirement program to suit your unique needs, means, and goals. (Insurance must be incidental. The IRS places limits on the amount of insurance that may be purchased.; Mutual funds and variable annuities are offered by prospectus only. The prospectus includes more complete information, including charges and expenses. Please read the prospectus carefully before you invest or send money.)
To maximize the impact of the TSA's tax advantages, you'll want to get started now and put the "power of time" to work for you. It's common sense the sooner you start saving, the more money you'll have waiting for you at retirement.
If you think your organization fits the TSA guidelines, check with your personnel manager to see if your employer offers a program. If they do, you may want to give serious consideration to signing on. If your employer is eligible but does not have a TSA plan in place, you may want to drop a note in the suggestion box. And never hesitate to speak with a New York Life agent or NYLIFE Securities registered representative for a no-fee retirement planning consultation.
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|Gimme Shelter: TSAs Now Better Than Ever|