TSA Annuity Value vs. Surrender Value
If you work for a company that is in business to make a profit, your employer likely offers a 401k plan that allows you to save money and defer your taxes until you reach retirement age. Tax-sheltered annuities (TSAs) are a nonprofit organization's answer to the 401k. Like a 401k, if your organization offers a TSA, you can contribute a portion of your pretax income to your TSA account, deferring taxes until you retire.
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Tax-Sheltered Annuities
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To qualify for a TSA, you must work for a nonprofit organization such as a public school, charity, church or Indian tribal government. TSAs are sometimes referred to as 403b plans, because their rules are governed by Internal Revenue Service Code 403b. Like a 401k, you can invest your money inside the plan, buying stocks, bonds and other financial securities. You can contribute up to $16,500 per year as of 2011, which reduces your taxable income for the year by that amount. Once you reach age 59 1/2, you can begin taking money out of your plan, which will then be taxed as normal income.
Surrender Value
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The surrender value of your TSA represents the amount of money you will receive if you take the money in one lump sum. For example, if you have $100,000 in your TSA account and you are at least 59 1/2, your surrender value is $100,000, minus regular income tax, which is based on your tax bracket at the time you take the money. If you are not yet 59 1/2, your surrender value is the value of your TSA minus a 10 percent early-withdrawal penalty, minus income tax on the amount you withdraw.
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Annuity Basics
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If you wish, you can treat your TSA as a common annuity. An annuity is an investment product that pays you a regular income over a certain period of time or over the span of your life, depending on which payout option you choose. The amount of income you draw from your TSA depends on how much money is in the plan, the interest the money earns and the amount of time you take to withdraw your money.
Annuity Value
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The annuity value of your TSA is the total amount of money you can withdraw from your plan over the withdrawal period. For example, suppose you have $100,000 in your plan, earning 5-percent interest each year. If you wish to withdraw money over the next 20 years, your annuity value is $1,246,221, which is the total amount of money you can actually withdraw from your plan over the next 20 years. If interest paid on your account is paid at the beginning of each period instead of the end, your annuity amount will be slightly higher. You can use an annuity calculator for help in determining the annuity value of your account.
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