Chapter 25
TAX DEFERRED ANNUITY
LEARNING OBJECTIVES:

Identify basic features and applications of tax deferred annuities
REVIEW:
This chapter covers tax deferred annuities (TDAs), or Internal Revenue Code
Section 403(b) plans. The chapter begins by identifying the type of employer that
can implement such a plan—essentially tax-exempt organizations (per Section
501(c)(3)) and public educational organizations. Advantages and disadvantages
are covered next. The section on design features focuses on: salary reductions;
catch-up contribution provisions; employer contributions and Internal Revenue
Code Section 415 limits; nondiscrimination requirements; vesting; plan
investments; and plan distributions. Coverage of tax implications and ERISA
(Employee Retirement Income Security Act) requirements is followed by
information on how to install a plan. A good question and answer section follows
three references to where the student can learn more.
CHAPTER OUTLINE:
I. What Is It?
II. When Is It Indicated?
III. Advantages
IV. Disadvantages
V. Design Features
A. Salary Reductions
B. The TDA Salary Reduction Catch-Up
C. Employer Contributions
D. Section 415 Limits
E. Nondiscrimination Requirements
F. Vesting
1
Chapter 25
G.
H.
I.
J.
K.
L.
M.
M.
Plan Investments
Plan Distributions
Tax Implications
ERISA Requirements
How to Install a Plan
Where Can I Find Out More About It?
Questions and Answers
Chapter Endnotes
FEATURED TOPICS:
Tax deferred annuities (403(b) plans)
FIGURES:
Figure 25.1 Allowable Distributions from 403(b) Plans
CFP® CERTIFICATION EXAMINATION TOPIC:
Topic 63: Other tax-advantaged retirement plans
A. Types and basic provisions
5) 403(b) plans
COMPETENCY:
Upon completion of this chapter, the student should be able to:
1. Identify basic features and applications of tax deferred annuities
KEY WORDS:
Tax deferred annuity (TDA)
Section 403(b)
Salary reduction
Catch-up provision
Section 415 limit
401(m) test
501(c)(3) organization
Roth 403(b)
Chapter 25
DISCUSSION:
1. Discuss advantages, disadvantages, and characteristics of tax deferred
annuities.
2. Discuss considerations in choosing between a 403(b) plan and a 401(k) plan.
QUESTIONS:
1. In addition to public schools and colleges, which of the following types of
organizations may be allowed to establish a tax deferred annuity plan?
(1) private colleges
(2) hospitals
(3) churches
(4) political lobbying organizations
a.
b.
c.
d.
(1) only
(1) and (2) only
(1), (2), and (3) only
(2), (3), and (4) only
Chapter 25, p. 209
2. When considering employee limits on annual plan contributions, which of the
following sources must be included?
(1) 457 plans
(2) SIMPLE IRAs
(3) 401(k) plans
(4) SAR-SEPs
a.
b.
c.
d.
(1) and (2) only
(2) and (4) only
(1), (2), and (3) only
(2), (3), and (4) only
Chapter 25, pp. 211, 212
3. Assuming a covered employee is working for a qualified employer, after how
many years of service can he or she make the additional salary reduction
catch-up contribution into a TDA?
a. 10
b. 15
c. 20
Chapter 25
d. 25
Chapter 25, p. 211
4. Which one of the following non-employee independent contractors may
contribute to a tax deferred annuity plan?
a.
b.
c.
d.
radiologist
anesthesiologists
both of the above
neither of the above
Chapter 25, p. 215
ANSWERS:
1. c
2. d
3. b
4. d