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Tax Sheltered Annuities (TSA)

403(b) Supplemental Retirement

The College of William & Mary offers both this 403(b) Tax Sheltered Annuity Plan and a 457(b) Deferred Compensation Plan (DCP) as supplemental retirement plans.

What is a Tax Sheltered Annuity (TSA)?

Since 1942 the Internal Revenue Code has permitted certain employers, such as William and Mary, to purchase tax sheltered annuities (TSAs) for their employees. The tax sheltered annuity arrangement permits an employee to contribute tax-free dollars to an annuity program. By contributing to a TSA program, an employee's gross income is reduced and state and federal income taxes are reduced. Interest earned on this investment is also exempt from taxes until the money is withdrawn.

Why is a TSA Worth Considering?

The tax shelter annuity program serves as a supplemental retirement annuity, in addition to Social Security and a retirement annuity from your employer. The tax sheltered annuity can provide a much higher income replacement ratio in retirement than Social Security and a retirement annuity. Although the TSA program is intended to supplement retirement income, it may be used for emergencies (financial hardship) and can provide a source of income to a survivor in the event of death or as income for disability. When money is withdrawn from a tax shelter annuity it is reported as income for tax purposes. The tax impact is generally not as great on withdrawal, especially at age 65 and retirement when annual income is lower.

Benefits of a TSA or DCP Supplemental Retirement Plan

  • Your contributions are automatically made through payroll deduction
  • A variety of investment choices are available
  • You don't pay federal or Virginia income tax on the deferrals, earnings on your account, or your plan account savings
  • State employees who contribute the specified amount receive an employer-paid cash match (does not pertain to hourly employees)
  • You choose the amount you want to save, subject to tax code and plan limits.

 Can I Participate in Both the 403(b) TSA and 457 DCP Plans?

Yes. As an employee of a College, you now have the opportunity to contribute up to the maximum in BOTH a 403(b) plan and the 457 Deferred Compensation Plan at the same time. However, you are only eligible to receive the cash match 401(a) with one plan (does not pertain to hourly employees). Employees who join both plans will default their cash match plan to the 457 unless they specify otherwise.

How Much May Be Contributed to a TSA?

Tax Shelter Limits: In accordance with IRS guidelines, you will be allowed to deduct the following for a 403(b) Tax Shelter Annuity Program (TSA) and the 457 Deferred Compensation Program:

  • Standard Maximum - $17,500 for employees under age 50.

To assist you in your future retirement planning, individuals who are 50 and older may contribute an additional (“catch-up”) contribution as follows:

  • Catch-Up Maximum - $23,000 for employees age 50 and older.

15 year Rule: An individual employed by W&M or VIMS for 15 or more years may defer up to an additional $3,000 per year for a maximum five-year contribution of $15,000, subject to certain limits based on prior years' deferrals.  Please inquire with your plan provider for eligibility and required documentation. Employees may participate in a 403(b) TSA and the 457 DCP simultaneously.

The Virginia Cash Match Plan 401(a) (does not pertain to hourly employees)

The Virginia Cash Match Plan is an employer-paid program where the employer will match on a semi-monthly basis up to 50% of the full-time participant's contribution or $20 per pay period with the employee contributing $40, whichever is less.  If you are interested in participating in either the 457 or 403(b) with a cash match plan, please contact Rita Metcalfe at (757) 221-3158, Amy Byxbe at (757) 221-3155 or David Sherman at (757) 221-3151 for additional information and/or assistance. Note: Cash match is only available to full-time employees.

How Do I Enroll?

The Benefits Office has literature and enrollment forms. The effective date of enrollment and contributions in a tax shelter annuity must be the first day of the pay period, the 10th or 25th.

How and When May I Make Withdrawls from a TSA or DCP Account?

The Tax Reform Act of 1986 placed restrictions on withdrawal of contributions to a TSA program. Contributions may be withdrawn due to:

  1. Financial Hardship**
  2. Termination of Employment
  3. Death or Disability
  4. Age 59 ½  

**The Internal Revenue Service has not defined "financial hardship." It is believed that the hardship definition related to 401(k) plans will also apply to 403(b) plans. This definition is "immediate and heavy financial needs of the employee that cannot reasonably be met through other resources." Distribution based on financial hardship will be salary contributions only and will not include any earned interest. With any early distribution there is a 20% penalty in addition to state and federal taxes.

The Tax Reform Act also requires mandatory distribution of your TSA benefits no later than April 1 of the calendar year following the year in which you become age 70 ½,  regardless of your actual retirement date. If you do not begin distribution by this time you will be subject to an additional tax equal to 50% of the minimum required distribution.

How Many Changes Can I Make?

In accordance with Internal Revenue Service, effective January 1, 1997, 403(b) participants can legally make unlimited changes in a calendar year. However, you may not exceed the maximum for the calendar year. A TSA Salary Reduction Agreement (pdf) must be completed with each change and submitted to Human Resources.

Who are the Participating Vendors?

403(b)/401(a)

TIAA-CREF | 1-800-842-2776

Fidelity Investments | 1-800-343-0860

 

History of Maximum Limitations on
403(b) or 457 contributions :

403 B Limits

457 Limits

Over 50

1994

$9500

$7500


1995

$9500

$7500


1996

$9500

$7500


1997

$9500

$7500


1998

$10000

$8000


1999

$10000

$8000


2000

$10500

$8000


2001 (effective in 2001 you could have both a 403(b) and 457)

$10500

$8500


2002

$11000

$11000

$12000

2003

$12000

$12000

$14000

2004

$13000

$13000

$16000

2005

$14000

$14000

$18000

2006

$15000

$15000

$20000

2007

$15500

$15500

$20500

2008

$15500

$15500

$20500

2009

$16500

$16500

$22000

2010

$16500

$16500

$22000

2011

$16500

$16500

$22000

2012

$17000

$17000

$22500