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Tax-Sheltered Annuity |
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Tax-sheltered annuity A type of retirement plan under Section 403(b) of the Internal Revenue Code that permits employees of public educational organizations or tax-exempt organizations to make before-tax contributions via a salary reduction agreement to a tax-sheltered retirement plan. Employers are also allowed to make direct contributions on behalf of employees. Tax-Deferred Annuity A retirement plan in which an employee makes tax-deferred contributions from his/her pre-tax income. The employee is not taxed on the contribution until he/she begins to make withdrawals after retirement. Strictly speaking, a 401(k) is a tax-deferred annuity, but the term especially applies to a 403(b) plan, which is directed at teachers and employees of tax-exempt organizations, such as charities or churches.
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