Tax-Deferred Annuity

What Does Tax-Deferred Annuity Mean?

A tax-deferred annuity is a type of retirement plan available to employees of non-profit organizations, some public education organizations, cooperative hospital service organizations, as well as self-employed ministers. It is called a “tax-deferred” annuity because it is not taxed until the person starts withdrawing money from the annuity.

A tax-deferred annuity is also known as a tax-sheltered annuity.

Insuranceopedia Explains Tax-Deferred Annuity

403(b)s are an example of a TDA. These forms of retirement savings are commonly offered to government and non-profit organization employees. The employee, the employer, or both may contribute to the account, depending on the structuring of it. Oftentimes, the employer will make contributions that match the employee’s contributions up to a certain amount. However, sometimes an employee will make contributions based on a salary reduction agreement.

Tax-deferred annuities can help supplement pensions and/or social security income for retirees