Home > Products and Services > Employee Benefits > US > Tax Deferred Annuities

Tax Deferred Annuities

The basic purpose of the TDA program is to allow employees of non-profit organizations to save money on a regular basis and reduce their taxes.


WHAT IS A TDA?

Tax deferred annuity is a planned means of saving a portion of current income for systematic distribution at a later date. Amounts saved are excluded from current income and, therefore, are not presently taxed. Interest earnings on the savings are also not included in current income and, therefore, are not presently taxed.


ADVANTAGES:

There are several advantages to a TDA program. An employee can supplement retirement and social security benefits with an annuity purchased with tax deferred installments. The double tax benefit of TDA’s allow savings to grow at a favorable rate not subject to current income taxes. Taxes are deferred until funds are withdrawn (probably at retirement age)—when an individual most likely will be in a lower income tax bracket.


RESTRICTIONS

  • Salary Reduction:

    • An employee must save through salary reduction. In a way that’s good because the employee feels the tax savings immediately and it creates a forced savings program.

  • Limited Amount:

    • The government limits the amount an employee can save.

  • Money is Taxed as Withdrawn:

    • While an employee can take either part or all of the money at any time, taxes must be paid in the year in which the money is withdrawn. When an employee retires, he or she most likely will be in a lower tax bracket, and if age 65, he or she will get double exemptions.

  • Type Investment:

    • While an employee can take the money – either all or part – in cash at any time, the investment is essentially restricted to something that has the ability to give the employee a lifetime retirement income.


INVESTMENT CHOICES

TDA plans can offer a wide variety of investment choice.
To name a few:

  • Fixed Annuity:

    • Similar to a savings account in that the principal is guaranteed and a current interest return is paid on the account based upon current economic trends.

  • Common Stock Fund:

    • Common stock funds range from “aggressive” to more “conservative” ones. Most have a broadly diversified, professionally managed common stock portfolio. Although there is investment risk for the participant, there is an opportunity for substantial growth over a period of years.

  • Bond Fund:

    • Bond funds can also be more “aggressive” or “conservative” in their investment objectives. Some will specialize more in short, medium or long range bonds.

  • Money Market Fund:

    • Short term debt instruments meant to reflect current interest returns in the economy.

  • Balanced Fund:

    • Funds that invest in both stocks and bonds on a regular basis as a consistent part of their investment philosophy. In addition to funds that are managed “balanced funds,” participants using a “family of funds” where stock, bond, and/or money market accounts are available can create their own “balanced funds” by investing a part of their money in one or more funds.

  • Investment Timing Service:

    • The ability to purchase a professional investment timing service to move money between a stock account (aggressive position) and a money market account (defensive position), the investment objective of which is to increase the possibility of ultimate gain while minimizing risk.


For additional information, please e-mail us at , or write or call us at:

CSI Employee Benefit Plans
3350 East Paris Ave. SE
Grand Rapids, MI 49512-3054
800-635-8288, ext. 228
Fax: 616-301-2149