A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers that allows contributions and earnings to be made on a pre-tax basis. Contributions and earnings are then taxed on distribution. In addition deferrals can be made to a 403(b) plan on an after tax basis if the employer opts to allow Roth contributions. Roth contributions are taxed at the time of deferral but then the contributions and earnings on those contributions are not taxed upon distribution.
Individual accounts in a 403(b) plan can be any of the following types.
- An annuity contract, which is a contract provided through an insurance company.
- A custodial account, which is an account invested in mutual funds.
- A retirement income account set up for church employees. Generally, retirement income accounts can invest in either annuities or mutual funds.