| TAX SHELTERED ANNUITIES
403(b) PLAN
Regular full-time employees are eligible
to participate in a special retirement savings plan known as a
tax sheltered annuity (TSA) or tax deferred annuity (TDA). Similar
to a 401(k) plan or deductible IRA, a 403(b) TSA is an ideal way
to save for your retirement while you reduce your current taxes.
This personal plan is in addition to your mandated state retirement
plan, and one does not affect the other. Here are some ways to
make the most of your 403(b) plan:
PARTICIPATE. A 403(b) plan is designed
for employees of certain, but not all nonprofit organizations,
including public educational institutions, churches, hospitals,
and social welfare agencies. Contributions are made through payroll
deduction. Although 403(b) plans generally aren't considered as
attractive as 401(k) plans for employees, they still provide the
benefit of allowing employees to divert some of their salary before
taxes into an account whose earnings grow tax-deferred until withdrawal.
This reduces your current tax liability. (Taxes are payable upon
withdrawal.) This is typically the best way for most people to
build a retirement nest egg.
INVEST WISELY. When 403(b)'s were first
formed, before 401(k)'s, they offered only tax-deferred annuities.
Annuities are investment programs offered by insurance companies.
The annuities may either offer a fixed return guaranteed by the
insurer, or a variable return that depends on the performance
of the investments you choose. Contributions to 403(b) annuities,
unlike non-403(b) annuities, are tax deferred, which helps your
retirement account grow faster.
Today, 403(b) plans, although still often
referred to as tax-sheltered annuity plans, allow you to invest
in mutual funds. Yet, according to the research firm of Spectrem
Group/Access Research, roughly half of the money invested in 403(b)
accounts is invested in fixed annuities, compared with a heavier
weighting in stocks and mutual funds in 401(k) plans. Many Certified
Financial Planner practitioners feel that the returns of fixed
annuities generally are too low for people trying to build for
retirement, averaging around 6 percent, and they would do better
over the long run to beef up their stock side. In addition, critics
point out that it generally doesn't make sense to invest in annuities
inside a tax-deferred 403(b) because the earnings of annuities
are already tax-deferred, anyway. AASU presently has contracts
with seventeen companies allowing you a wide personal choice of
investment options.
WATCH OUT FOR HIGH FEES. This is the most
controversial aspect of 403(b) plans. The annuity options inside
a 403(b) generally have higher fees than no-load mutual funds
offered through the same accounts. These include charges for switching
out of an annuity within a certain number of years after buying
it, and the fee you pay for the insurance component attached to
the annuity. Some employees have had to fight to get no-load mutual
funds offered in their plans.
PLAY CATCH-UP. A unique feature of 403(b)
plans is that sometimes you can contribute more to the plan than
the normal annual contribution limits (a maximum of $10,500 in
2000). You can use this feature to catch-up in the event you contributed
less than the maximum in previous years. Eligibility and contribution
rules are complex here, so you'll need to run it by the agent
of your chosen company.
Despite some drawbacks compared with 401(k)
plans, 403(b) plans offer a good way to build a nest egg. Consider
seriously joining such a plan.
TO START A 403(b) TSA: YOU must decide
which participating company (listed below) you would like to use.
Once you contact your chosen company and set up an account with
them, you contact the Director of Human Resources (x5413) to set
up your payroll deduction.
PARTICIPATING COMPANIES:
* American Funds Dist.
* Equitable Life Assurance
* Fidelity
* Horace Mann
* ING (Northern Life Insurance Co.)
* Life Insurance Company of GA
* Lincoln National
* Massachusetts Mutual
* Mass Mutual VA
* New England Life
* New York Life Insurance Co.
* Prudential Insurance
* TIAA CREF
* T Rowe Price
* USAA Annuity Life
* Variable Annuity Life (VALIC)
Please call the Director
of Human Resources if you need any further information on
this excellent benefit available to you.
403(b)
Form
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