What Is a TDA Retirement Plan?

A TDA, or tax deferred annuity, is a tax-favored retirement plan that allows an employee of a nonprofit organization to contribute money pre-tax toward retirement. Over 156 million people had a TDA retirement plan in 2006, according to the U.S. Department of Labor. This is an attractive plan type because people saving for retirement look for methods to easily save money through their paychecks. TDA retirement plans also allow participants to choose between many different investment options and save in a manner that matches their individual retirement needs.



In 1942 the IRS allowed some nonprofit organizations and public school systems to offer TDA plans. In 1958 the Technical Amendments Act was passed along with a series of Internal Revenue Code changes, establishing the basis for today's 403(b) retirement plans. Starting in 2006, new IRS rules allow TDA plans to be pre-tax or Roth accounts, although individual employers aren't required to administer both types of plans. In 2007 the Department of Treasury finally created finalized 403(b) rules, which moved TDA taxation rules closer to those of 401(k) and 457 plans.


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TDA retirement plans often are referred to by other names. They may be called a Tax Sheltered Annuity, or TSA, which denotes that the tax deferral aspect of the plan provides a tax shelter for participants. It may be called a 403(b) plan, which denotes the tax code used to identify these plans when compared to 401(k) or 457 retirement accounts. TDAs in a 403(b) plan may be identified because they will have an annuity as the primary investment option rather than mutual funds.



Funds are taxed when removed from the TDA, which is either at retirement age not before age 55 or after age 59 and 1/2. Exceptions to these rules involve specific IRS hardship or disability rules, death, or substantially equal periodic payment rules. The IRS permits loans through plans, although individual plans aren't required to offer them.



Every TDA retirement plan includes an annuity, which may have many different features, benefits, and costs. Individuals may have to wait until specific dates to join the plan and may be limited in the number of times they're allowed to change the contribution amount. Three different types of annuities exist in TDA plans. Fixed annuities pay a guaranteed interest rate. Variable annuities have many different investment options available that the participant may choose from and switch freely. Equity-indexed annuities credit a return to the account that's based on a popular index, such as the S&P 500, while still typically guaranteeing a minimum return.



People choosing how to best use a 403(b) TDA plan should match their investment amount and annuity choice with their long-term retirement goals and risk tolerance. Annuities charge internal fees that aren't immediately apparent without reading the contract and can lower the expected return. Some annuity companies charge surrender fees to participants leaving the account early.