Tax-Sheltered Annuity Law and Legal Definition

Tax-Sheltered Annuity is a retirement annuity plan for employees of tax-exempt organizations and public schools to make contributions from his/her income. This annuity plan is also known as a Section 403(b) plan. This annuity plan is supported by pretax salary deductions and retained as tax-deferred income. Sometimes, the employer makes direct contributions to this annuity plan, and the employee gains the benefit of having additional tax-free fund generation. There is a ceiling on such employee contribution. However, the catch-up provisions enable the employers to make additional contributions to compensate the arrear amount due.