Tax Sheltered Annuities


Tax Sheltered Annuity Plans discusses the personal retirement savings plan available to employees of certain non-profit organizations and public schools under §403(b) of the Internal Revenue Code.  The course begins with an examination of both employer and participant eligibility.  The general limits on contributions are examined, and the special catch-up contributions are considered.  The nature of the salary reduction agreement is discussed.

The rules governing premature and required distributions are discussed, and the limits applicable to participant loans from tax sheltered annuities are considered.  The maximum loan repayment schedules are addressed, and the consequences of loan default are explained.

Estate and gift tax (on designation of irrevocable beneficiary) rules are discussed.  The income tax treatment of plan contributions and distributions is examined, including:

  • Premature distributions and exceptions to the 10% tax penalty
  • Mandatory 20% withholding on certain lump-sum distributions

Permitted tax sheltered annuity investments are discussed.  The term “annuity,” when used in a 403(b) plan includes incidental life insurance, a fixed annuity or a variable annuity.  Custodial accounts may be used to fund tax sheltered annuity accounts.  Through custodial accounts, a participant may purchase redeemable shares in an open-end mutual fund.

Finally, the course discusses the various plan requirements.  Among the issues examined are the:

  • Participation, coverage and non-discrimination requirements
  • Non-forfeitability requirements
  • Distribution requirements

Upon completion of this course, the student will be able to understand:

  1. The tax sheltered annuity plan rules with respect to:
    • eligibility of participants,
    • eligibility of employers,
    • contribution levels and
    • tax treatment of contributions.
  1. The rules governing catch-up provisions and the increase permitted to the limit on elective deferrals.
  2. The benefits of tax-deferred accumulation.
  3. The nature of and limitations as to permissible tax sheltered annuity funding vehicles.
  4. The rules governing tax sheltered annuity distributions, loans and rollovers and their tax treatment.
  5. The general tax sheltered annuity plan requirements.


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