Tax Sheltered Annuity (TSA) and 403(b) | 403B Calculator

Shawn Plummer

CEO, The Annuity Expert

Are you looking for a way to save for Retirement that offers tax benefits? If so, you may consider a Tax Sheltered Annuity (TSA) or 403(b). These investment vehicles offer several advantages, including tax-deferred growth and making contributions pre-tax. This guide will discuss TSAs and 403(bs) and how they can benefit you! We include a free 403b calculator too!

What Is A Tax-Sheltered Annuity?

What is a TSA Plan? A Tax Sheltered Annuity (TSA) is a pension plan for employees of nonprofit organizations as specified by the IRS under sections 501(c)(3) and 403(b) of the Internal Revenue Code.

The tax deferment allowed is like allowing for contributions a corporate employer makes to a qualified pension or profit-sharing plan.

TSA plan participants include:

This guide will answer the following questions:

  • What is a tax-sheltered annuity?
  • How does a tax-sheltered annuity work?
  • Can I withdraw money from my TSA?
  • Are tax-sheltered annuities considered qualified funds?
  • Is a TSA funded with pre-tax money?

What Are Tax-Sheltered Annuity Plans

Nonprofits and public education institutions can establish tax-sheltered annuity plans, often known as 403(b). They enable participants to invest pre-tax funds in an annuity or custodial account.

These pensions’ benefits are comparable to 401(k) plans offered by businesses organized for profit. In addition, employees of qualifying employers may participate in these TSA plans, which allow them to defer income under a salary reduction agreement.

Although participants may defer additional amounts in a TSA, the maximum salary that can be reduced is limited to the elective deferral amount—and this deferred money is invested in the TSA.

Employer contributions, both matching and non-matching, may be made at a certain percentage of the plan participant’s deferrals or without regard to employee deferrals.

Employee and employer contributions combined may not exceed the yearly defined contribution limits.

A 403(b) tax-sheltered annuity plan, like a 401(k), may allow participants to allocate some or all of their plan contributions on an after-tax basis to a designated Roth account.

What Is A 403(b) Plan?

The 403(b) plan is a retirement savings tool offered to employees of specific nonprofit organizations. If you work for one of these employers, your contributions and earnings are tax-deferred, saving you a lot of money in the long run. In addition, many employers offer matching funds for your 403(b) account contribution – meaning they will contribute 0% to 100% of what YOU contribute. Therefore, it would be imprudent not to sign up for this retirement savings plan.

A tax-advantaged, defined contribution retirement savings plan, sometimes called a tax-sheltered annuity, is available for public education organizations, institutions of higher education, some not-for-profit employers (only 501(c)(3) organizations), cooperative hospital service organizations, and self-employed ministers in the United States.

  • Employee contributions, which are payroll deducted into a TSA 403(b) tax plan, are generally made on a pre-tax basis and are allowed to grow tax-deferred.
  • Withdrawals from the plan are taxed as ordinary income.
  • TSA 403(b) plans are funded with annuity contracts and a mutual fund platform
  • Roth contributions may be allowed and are taxable, subject to specific requirements.
  • Earnings on Roth contributions that meet specific requirements are not subject to federal income tax.
  • Some plans provide employer match and non-match contributions on behalf of plan participants. 
  • FICA taxes are currently withheld from salary reduction contributions to the 403(b) TSA retirement plan.

How Does A 403b Retirement Work?

A 403(b) retirement plan is a tax-advantaged retirement savings plan available to employees of specific tax-exempt organizations, such as public schools, hospitals, and specific nonprofit organizations. It is similar to a 401(k) plan, but it is specifically designed for employees of these organizations.

Here’s how a 403(b) retirement plan works:

  1. Employees can contribute a portion of their salary to the plan on a tax-deferred basis, meaning they do not have to pay income tax on the money they contribute until they withdraw it at Retirement.
  2. Employers may also choose to contribute to the plan on behalf of their employees through matching or non-elective contributions.
  3. Employees can choose how their contributions are invested, typically from a selection of mutual funds or other investment options offered by the plan.
  4. Contributions to a 403(b) plan may be made on a pre-tax or post-tax (Roth) basis, depending on the plan.
  5. Earnings on the investments in the plan grow tax-free until the employee withdraws the money at Retirement.
  6. Employees can typically start withdrawing money from their 403(b) plan when they reach age 59 1/2, although some exceptions exist.
  7. Withdrawals from a 403(b) plan may be subject to income tax, depending on whether the contributions were made on a pre-tax or post-tax basis.

It’s important to note that the rules and regulations governing 403(b) plans can vary, so it’s a good idea to carefully review the terms of your specific plan and consult with a financial professional or a tax advisor for more information.

Types of 403(b) Plans

There are two 403(b) plans types- traditional and Roth. Not all employers give their employees access to the Roth version, though.

Traditional 403(b)

A 403(b) plan lets the employee deduct money from each paycheck before taxes, which goes into a personal retirement account. By doing this, the employee decreases their taxable income for the year and only has to pay taxes on the money when it’s withdrawn later.

Roth 403(b)

A Roth 403(b) requires that you pay taxes on the money you put into the account upfront. This may seem a disadvantage, but it means that you won’t owe any more taxes on that money or the profit it accrues when you withdraw it later.

403(b) Contributions

The yearly contribution caps for 403(b) plans are the same as 401(k) plans, which are $20,500 for the 2022 tax year and $22,500 for the 2023 tax year. The plan also offers an additional $7,500 contributions for those aged 50 and older.

In 2022 and 2023, the maximum amount that an employee and employer can contribute towards Retirement is $61,000 and $66,000–or 100% of the employee’s yearly salary.

403(b) Annuity Payroll Deductions

  • Employee authorizes the employer to reduce their salary by a specified amount to contribute to a 403(b).
  • Employer forwards this amount to an insurance company to fund a 403(b) on behalf of the employee.

No federal income taxes are withheld on the portion of salary contributed to the 403(b). 

It is excluded from the employee’s gross income for federal and most state income tax purposes (except in designated Roth contributions).

FICA taxes are currently withheld from the portion of salary contributed to the 403(b).

Each employee who wishes to participate in a 403(b) generally must submit a “salary reduction agreement (SRA)” (a.k.a. “amendment to employment contract“) to the employer specifying the amount by which the employee’s salary is to be reduced.

Some 403(b) plans have automatic enrollment features that begin salary reduction contributions when employees become eligible to participate unless the participant affirmatively opts out.

These automatic enrollment plans are also known as “negative election” plans.

The tax code limits the amount each employee can contribute to a 403(b) plan.

This amount depends on many factors and should be determined annually for each employee using a formula that complies with applicable tax requirements. 

Tax Sheltered Annuity In Retirement

A 403(b) TSA annuity contract may be annuitized at any time after becoming eligible for distribution.

An annuity has two periods: the accumulation period and the distribution period (annuitization or income rider).

TSA Withdrawal Rules

You may withdraw funds from your TSA before Retirement only in the following circumstances (triggering events):

  • Termination of employment;
  • Financial hardship due to medical bills or college expenses;
  • Disability; and
  • Death.
  • Qualified domestic relations order (QDRO) due to a divorce
  • Return of excess elective deferrals

Withdrawals may be subject to surrender charges in the contract.

Withdrawals from a 403(b) TSA made before age 59½ will generally result in an IRS 10% early-withdrawal penalty in addition to income taxes.

There is no IRS penalty on withdrawals after age 55 if you terminate employment or after age 59½ for any reason.

Loan Provisions

You may be eligible to receive one loan per calendar year from your TSA retirement plan.

Each loan must be at least $1,000, and the amount you may borrow may be reduced if you already have an outstanding loan balance or have taken another loan within the prior 12 months.

Required Minimum Distributions

You may receive IRS Required Minimum Distributions without a surrender charge.

90-24 Transfer

Transfer of funds from one 403(b)/tax-sheltered annuity (TSA) contract to another (403(b) /TSA contract.

If you transition between employers, any retirement-savings funds your employer distributes directly to you are subject to 20% federal tax withholding, leaving considerably less money for you to transfer into another qualified plan.

Exceptions to the 20% federal tax withholding:

  • Direct Rollovers: Funds transfer directly from one financial institution to another.
  • Free Looks: When a newly issued contract is canceled.
  • Hardship: An IRS-qualified financial hardship
  • Substantially Equal Periodic Payments: 72(t) and 72(q) distributions before age 59.5
  • Divorce Case Direct Transfer: Funds distributed due to a divorce case.
  • Excess Contribution Transfer: Funds are removed because you contributed more than allowed.
  • Required Minimum Distribution (RMD): Funds are required to be distributed at 72.

If you don’t transfer an amount equal to your direct distribution within 60 days, the amount not transferred is subject to income taxes and an IRS penalty.

An ideal way to avoid this blow to your savings is to transfer that money directly into a TSA.

You can avoid taxes and penalties and allow your money to grow in a safe, tax-deferred annuity.

403(b) Tax Advantages

Lower Taxable Income

Contributions are made on a pre-tax basis, which lowers your current taxable income.

Compound Savings

Income taxes on your TSA savings are due only when you withdraw or begin taking regular distributions, generally at Retirement, when your tax bracket may be lower. As a result, interest accumulates on your principal, your earnings, and the money you would otherwise pay in income taxes.

How Are Contributions To A Tax-Sheltered Annuited Treated With Regards To Taxation?

Tax-sheltered annuities (TSA) are considered to be a qualified retirement plan. Contributions to a TSA are taken from your earnings and set aside in the retirement plan to grow. They do not become taxed until you take them out of the account in Retirement. Withdrawals from a TSA will be taxed as ordinary income tax. Withdrawals will also be subject to a 10% penalty from the IRS if withdrawn before age 59 1/2.

What Do My Beneficiaries Receive When I Die?

Tax-sheltered annuities come with a straightforward death benefit which is the annuity’s accumulation value in a lump sum.

Helpful tip: Life insurance might be a better option if you want to leave money to your beneficiaries. In some cases, you don’t need to take a medical examination. Shop online life insurance quotes and find out if you can get affordable coverage. Coverage starts at $9.37 per month. Proceeds are tax-free too!

When can I take the money out?

You can take distributions from the 403(b) plan at age 59½ if you are fully disabled or at a separation of service.

  • A 10% IRS penalty may apply if withdrawn before age 59½.
  • Regular income tax will be due on distributions.

Distributions due to financial hardship may be available.

Please check with the Plan Administrator for eligible hardship distributions and provide any supporting documentation.

All distributions must be approved by the plan administrator unless grandfathered.

Grandfathered exceptions include:

  • You did not make any salary deferral contributions to the specific contract after December 31, 2004.
  • Your contract was issued with a 90-24 transfer initiated before September 25, 2007, and no additional contributions were made.
  • Your employer that sponsored the contract no longer exists.

403(b) Savings Calculator

Are you looking to save for Retirement? A 403b plan can be a great way to do that. But knowing how much you need to save to reach your goals can be challenging. That’s where our 403b savings calculator comes in. Just enter basic information about your current savings and goals, and our calculator will show you how much growth your savings will earn in the future. It’s a quick and easy way to understand better how on track you are for Retirement. So why not give it a try today?

403(b) Savings Calculator without Employer Match Definitions

Amount to contribute

This is the amount that you contribute to your 403(b) plan each year. Participants can contribute up to 100% of their annual income, subject to an annual maximum.

Annual contribution limits

Your total contribution for one year is based on your annual salary times the percentage you contribute. However, your annual contribution to your 403(b) account is also subject to specific maximum total contributions per year. For example, the annual maximum for 2023 is $22,500. If you are 50 or over, a ‘catch-up’ provision allows you to contribute an additional $7,500 to your account. It is also important to note that employer contributions do not affect an employee’s maximum annual contribution limit.

403(b) Employer Contribution match

An employer match is in addition to your annual contributions. It is based on a percentage of your annual contributions. This range can be anywhere from 0% to 100%.

Annual salary

This is your annual salary from your employer before taxes and other benefit deductions. Since your contribution and any company match are based on the salary paid to you by your employer, do not include any income you may receive from sources other than your employer.

Current age

Your current age.

Age at Retirement

Age you wish to retire. This calculator assumes that the year you retire, you do not make any contributions to your 403(b). So, for example, if you retire at age 65, your last contribution occurs when you are 64.

Current balance

The starting balance or current amount you have invested or saved in your 403(b).

The annual rate of return

The annual rate of return for your 403(b) account. This calculator assumes that your return is compounded annually and your deposits are made monthly. The actual return rate largely depends on the types of investments you select. For example, the Standard & Poor’s 500 (S&P 500) for the ten years ending December 31, 2021, had an annual compounded rate of return of 13.6%, including reinvestment of dividends. From January 1, 1970, to December 31, 2021, the average annual compounded rate of return for the S&P 500®, including reinvestment of dividends, was approximately 11.3% (source: Since 1970, the highest 12-month return was 61% (June 1982 through June 1983). The lowest 12-month return was -43% (March 2008 to March 2009). Savings accounts at a financial institution may pay as little as 0.25% or less but carry a significantly lower risk of loss of principal balances.

It is important to remember that these scenarios are hypothetical, that future rates of return can’t be predicted with certainty, and that investments that pay higher rates of return are generally subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment. Investing directly in an index is impossible, and the compounded rate of return noted above does not reflect sales charges and other fees that investment funds and companies may charge.

Annual salary increase

The annual percentage you expect your salary to increase. We assume your salary will continue to increase at this rate until you retire.

Annual investment fee

This is an annual fee based on the balance of the account.

Annual contribution limits

Your total contribution for one year is based on your annual salary times the percentage you contribute. However, your annual contribution is also subject to specific maximum total contributions per year. For example, the annual maximum for 2023 is $22,500. If you are 50 or over, a ‘catch-up’ provision allows you to contribute an additional $7,500 to your 403(b) account. It is also important to note that employer contributions do not affect an employee’s maximum annual contribution limit.

In addition, an additional catch-up provision for participants that did not participate in the plan earlier in their tenure may be available. These special catch-up provisions are subject to length of employment and other contribution rules. Determining your maximum contribution based on these additional catch-up provisions is beyond the scope of this calculator.

403(b) Withdrawal Calculator

Annuities are the only retirement plan in the United States that guarantees an income for the rest of your life, even after the account has run out of money. You can roll over your 403(b) into an IRA annuity without a tax penalty. Use our 403b withdrawal calculator to determine how much retirement income an annuity can provide. Then request a quote below.

Note: You can purchase an annuity (with no tax penalties) with your 403(b), 401(k), traditional and Roth IRAs, retirement accounts, investments, and cash.

403(b) Withdrawal Comparison

The table below compares using an annuity to distribute your income by systematically withdrawing from Retirement plans yourself or through financial advisors.

Withdrawal Percentage5.20% – 6.55%4%4%4%
Can Income Increase?YesYesYesYes
Can Income Decrease?NoYesYesYes
How Long Will Money Last?Lifetime30 Years+30 Years+30 Years+
Annual Fees0 – 1.50%1% – 4%1% – 4%1% – 4%
Death BenefitAccount BalanceAccount BalanceAccount BalanceAccount Balance

Example: A 60-year-old retiree starts withdrawing immediately from their $1 million portfolio, they would receive:

Annuity vs. 403(b): Reasons to Rollover to an Annuity

A solid TSA 403(b) retirement strategy could be rolling the retirement plan into a new and possibly better annuity. Benefits include:


There are no TSA tax consequences as long as you follow IRS guidelines. You won’t pay any taxes on gains from the annuity until you withdraw your money.

Growth Potential

You can earn additional interest based on an external market index’s upward movement in both bull and bear markets.

Protection from market downturns

You will not lose money in a fixed index annuity due to market downturns. If the markets have a down year, you earn zero interest.

In exchange for this protection, you are limited on the upside you can get each year.

Guaranteed retirement income for life

You can choose to annuitize your annuity or add an optional income rider to generate a paycheck you can never outlive. Sometimes you can even get a paycheck that increases to help with inflation and the cost of living.


In addition to an income for life, waivers of surrender charges are often included to offer accessibility to your retirement plan in case of emergencies like entering a nursing home or terminal illness. In addition, there are no limits on annual contributions to an annuity.

Estate Planning

With most fixed-indexed annuities, your beneficiaries are guaranteed to receive your annuity’s Accumulation Value or Minimum Guaranteed Value, whichever is greater.

Contribution Match

As a 403(b) match from your employer, some annuities can offer a premium bonus (up to 20%) on rollovers and additional deposits.

How To Spend a 403(b) TSA Efficiently in Retirement

Utilizing a deferred annuity with a lifetime income rider will distribute a monthly income paycheck from the tax-sheltered annuity over a lifetime, even if the TSA 403(b) runs out of money. Certain annuities will also provide an income that increases yearly to maintain a retiree’s lifestyle as inflation and living costs rise.

Next Steps

A TSA or 403(b) can be a great way to save for Retirement and take advantage of some great tax benefits. If you are looking for an investment vehicle that offers tax-deferred growth and can make pre-tax contributions, a TSA or 403(b) may be right. This guide has provided an overview of TSAs and 403(bs) and how they can benefit you in Retirement. We’ve also included a free calculator to show you how much income you could receive by rolling over your 403(b) into an IRA annuity. If you would like more information about TSAs or 403(b)s, or if you would like a quote, please get in touch with us today.

Tax-Sheltered Annuity (Tsa) And 403(B) Retirement Plans

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Frequently Asked Questions

What is a TSA annuity?

A tax-sheltered annuity (TSA) is an annuity plan that allows an individual to save additional money for Retirement in a tax-advantaged way. TSAs are generally offered through employers, and contributions are usually made via payroll deduction. The funds saved in the TSA grow on a tax-deferred basis, meaning that taxes must be paid when they are withdrawn. TSAs can help individuals save more for Retirement while also saving on taxes due to the tax sheltering provided.

Are 403b contributions subject to fica?

Yes, contributions to a 403(b) retirement plan are subject to FICA taxes. This means employer and employee contributions are subject to Social Security and Medicare taxes. The current tax rate for FICA is 7.65%, with 6.2% of the rate going toward Social Security and 1.45% toward Medicare taxes. Contributions to a 403(b) can be made pre-tax or after-tax, depending on the particular plan’s rules.

Does TSA have a pension?

Yes, a tax-sheltered annuity (TSA) can have a pension. Pension payments from a TSA are typically based on the amount of money that was contributed to the plan and any employer contributions or other benefits provided. It is important to note that pension payments from a TSA are taxable, and taxes must be paid when they are received.

How does a 403b work when you retire?

When you retire from a 403(b) plan, the money saved in the account can be used to provide income during Retirement. Depending on the type of plan, distributions may begin as soon as you retire, or they may begin at a later date, such as when you reach a certain age. When distributions are taken from the plan, income taxes are due on the money withdrawn. The amount of taxes payable will depend on federal and state tax rates at the withdrawal time.

How much tax do you pay on 403b withdrawal?

The amount of taxes payable on a 403(b) withdrawal will vary depending on the tax rates at the withdrawal time. However, it is essential to keep in mind that all withdrawals from a 403(b) plan are subject to income taxes. Additionally, you may be subject to an IRS early withdrawal penalty if you take any money out before you reach age 59 1/2.

Are 403b contributions subject to social security taxes?

No, contributions to a 403(b) plan are not subject to Social Security taxes. However, any money withdrawn from the plan at Retirement is taxable as ordinary income.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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