Tax Favored Annuities are powerful retirement planning tools.

Overview &
Frequently Asked Questions

Overview

A Tax Favored Annuity is a long-term retirement plan that provides a systematic, tax-sheltered way to accumulate funds for retirement.
If you work for a school or other qualifying tax-exempt organization covered under IRC Section 501(c)(3) you can accumulate money for your retirement in a special tax-sheltered plan - a 403(b) Tax Favored Annuity.

A Tax Favored Annuity reduces your current taxable income.
Tax Favored Annuity contributions are excluded from your current taxable income and are tax deferred until you begin to receive distributions from your annuity. Interest earned on your annuity contribution is tax-deferred until you begin to receive distributions.

A Tax Favored Annuity offers a high degree of financial security.
Tax Favored Annuities are commonly offered in the form of fixed annuities. These are guaranteed to earn no less than a guaranteed minimum interest rate stated in the annuity contract. The fixed annuities are backed by the general account of the insurance company.

Having a Tax Favored Annuity doesn't reduce other retirement benefits.
You receive Tax Favored Annuity benefits in addition to your pension benefits. Social Security credits are not affected because they are determined by your gross earnings prior to annuity contributions. 

F.A.Q. (Frequently Asked Questions)

Who's Eligible for a Tax Favored Annuities?
If you work for one of the following types of organizations, you may be eligible to contribute to a 403(b) Tax Favored Annuities.

• Elementary schools
• Secondary schools
• Colleges and universities
• Medical schools
• Private colleges and universities
• Trade schools
• Correspondence schools
• Public forums
• Parochial schools
• Zoos
• Adult education schools
• Museums
• Hospitals
• Humane societies
• Religious organizations
• United funds
• Museums
• Literary groups
• Research foundations
• Public interest law firms
• Scientific foundations
• Charitable institutions

How much can I put into a Tax Favored Annuity?
Generally speaking, the current maximum yearly Tax Favored Annuity contribution allowed under a salary reduction agreement is 16 2/3% of your salary, up to $9,500. If you've been with the same employer for at least 15 years, you may be able to use a special catch-up provision to increase your annual contributions to $12,500. Voluntary contributions to other retirement plans such as a 401(k) may reduce the amount you can contribute to your Tax Favored Annuity. Return

When can I begin to withdraw funds?
Generally, you can begin receiving income or taking withdrawals from a Tax Favored Annuity after age 59 1/2. Annuities are designed for the long-term accumulation of retirement funds. To encourage annuitants to use their annuities for that purpose, the IRS imposes significant restrictions and penalties on Tax Favored Annuity withdrawals before age 59 1/2. This is in accordance with the Technical and Miscellaneous Revenue Act (TAMRA) of 1988.

What types of payouts are available to me upon retirement?
There are many options available to you, including:

• Systematic withdrawals
• Minimum distributions
• Lump sum payments
• Annuitizations

How can I take money out of a Tax Favored Annuity before I reach age 59 1/2?
Tax Favored Annuities have provisions that may give you access to your funds in certain limited circumstances:

Tax Favored Annuity Loans: If you have sufficient value in your annuity, if you have not exceeded loan maximums under Federal law and your Tax Favored Annuity contract permits, you may take tax-free loans from your Tax Favored Annuity. Generally, total loans must not exceed the lesser of $50,000 or 50 percent of your Tax Favored Annuity value. Generally, you must repay your loan within five years on a monthly basis. However, the terms of a loan may be extended up to twenty years if its purpose is to acquire your principal residence. Failure to repay a loan in a timely manner will result in its default. The IRS then considers the loan a distribution and taxes it accordingly.

Full or Partial Withdrawals: You may take a full or partial withdrawal of contributions attributed to salary reductions if you meet one or more of the following requirements:

• you are age 59 1/2;
• you are separated from service with your employer;
• you are disabled;
• you have funds contributed prior to 1989;
• you are experiencing a financial hardship as defined by the IRS
  (and there is no loan available);
• you are transferring your account to another 403 (b)
  qualified account; or you have died, in which case your
  beneficiary would receive the funds.

In addition, a distribution to a former spouse pursuant to a qualified domestic relations order will be permitted under certain circumstances. Again, though a Tax Favored Annuity can be a source of emergency funds, it is intended to help you accumulate money for retirement.

Will I have to pay taxes on the money I receive from a Tax Favored Annuity?
Yes, except in the case of a tax-free loan. Because your contributions were made prior to withholding, withdrawals are subject to income taxes. Again, however, your withdrawals will usually come after you retire when you'll probably be in a lower tax bracket. Current tax laws require most insurance companies to withhold 20 percent on all Tax Favored Annuity cash withdrawals. This sum is reported to you on a 1099 form. In addition, the IRS may assess a 10 percent early withdrawal penalty on withdrawals you make before reaching age 59 1/2.

What happens if I stop making contributions?
If, for any reason, you stop contributing to your Tax Favored Annuity your money will continue to earn tax-deferred interest. Neither the surrender charges nor the interest rate on your policy is affected. You can then resume your contributions at a later date, assuming you have not changed your salary reduction amount during the year.

What happens to my Tax Favored Annuity if I die?
Your beneficiary(ies) will receive the account value of your Tax Favored Annuity, penalty free, minus the balance of any outstanding loan. This distribution generally does not have to go through probate and is subject to income tax. You or your beneficiary(ies) may specify how benefits are distributed - in a lump sum payment, monthly or annual payments or a combination, within IRS limits. 

What happens if I find a new job?
If you change employers, you have the following options:

• Continue the plan with your new employer if the new employer is eligible and willing to do so. (If this is done, all restrictions and rules concerning Tax Favored Annuity distributions will continue to apply.)
• Leave your Tax Favored Annuity contributions in your policy to continue accumulating tax-deferred interest until retirement.
• Start receiving annuity payments from your annuity.
• Withdraw the value of your Tax Favored Annuity.

Can a Tax Favored Annuity benefit me if I'm retiring in two or three years?
In many cases, yes. If you have savings available for current living expenses, you may wish to divert a large part of your salary (subject to IRS exclusion limits) for this short period to take advantage of a Tax Favored Annuity's substantial tax benefits. This is an individual decision, however, upon which you should seek competent tax advice.

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