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403(b) Tax Sheltered Account
A 403(b) Tax Sheltered Account (TSA), is a salary
reduction plan designed for employees of certain non-profit
organizations and public educational institutions.
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Pre-tax contributions. Tax-deferred growth potential. Investment
diversification. These are just a few of the benefits you may be
able to enjoy.
- Pre-tax contributions—Automatic payroll
deductions make investing easy. Once you've decided how much
to contribute from each paycheck (Generally, the lesser of
100 percent of compensation or the Internal Revenue Code
section 402(g) limit per tax year. Please refer to the table
below for elective deferral limits.), instruct your employer
to deduct and send that amount each pay period to your
individual 403(b) TSA account. Because you make
contributions to a 403(b) TSA account on a pre-tax basis (up
to the allowable limit), every dollar you contribute to the
plan is one less dollar you have to pay current taxes (until
distribution)—thus reducing your current taxable income.
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Tax Year
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If You're Under Age 50, You May Be Able to Defer Up To:
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If You're Age 50 or Older, You May Be Able to Defer Up
To: |
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2007 - 2008 |
$15,500 |
$20,500 |
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2009 and after |
Indexed for inflation |
Indexed for inflation |
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Subject to limitation under the Internal Revenue Code—the
lesser of 100 percent of compensation or 402(g) limit.
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- Tax-deferred growth potential—Once
you've made your pre-tax contribution, it is invested
according to the investments you selected, allowing you
to begin enjoying the benefits of tax-deferred growth.
Any potential growth of your investment is not taxed
until you take your money out. Money distributed from a
plan will be taxed as ordinary income, in the year in
which it is received. Withdrawals taken before age 59
1/2 may be subject to a 10- percent early-withdrawal
penalty.
- Investment diversification—As with
any type of long-term investment, diversification may be
important. Mutual funds are a potential way to achieve
that goal. Generally, a mutual fund carries less risk than
investing in a single stock or security because it
diversifies itself across a broad range of companies or
market segments. If one stock in a mutual fund is down,
another one may be up or keeping its own. Keep in mind,
there is no assurance that a mutual fund will achieve
it’s investment objective. Funds are subject to market
risk, which is the possibility that the market value of
securities owned by a fund will decline and that the
value of fund shares may therefore be less than what an
investor paid for them. Accordingly, you can lose money
investing in mutual funds.
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