Frequently Asked Questions
How do I apply for a job? Where are your offices? How does a tax-sheltered annuity (TSA) work? These and many other frequently asked questions (FAQs) are answered below.
If you can’t find the answer to your specific question, try the search link at the top of the page or contact us.
General FAQs
Tax-Sheltered Annuity (TSA) FAQs
General FAQs
How do I know if I need an annuity, a group pension plan, life insurance, or long-term care insurance?
There are many options from which to choose, and there is much to consider.
After you’ve looked over your options and reviewed your solutions, we recommend that you consult a financial professional.
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How do I login to my account?
Go to the home page and use the Account Access box on the left side of the page.
You will need to enter your username and password in the blocks provided. If you have
forgotten your username or password, we can help you regain access to your account.
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Where can I get information about taxes?
There are several helpful tax-related resources on GAFRI.com, including a
tax and inflation calculator and
FAQs about tax sheltered annuities. Another good source for
tax FAQs is the Internal Revenue Service (www.irs.gov). Please note that these
resources are informational only. If you need tax advice, please consult your independent attorney or tax advisor.
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How do I apply for a job at GAFRI?
Select Explore Our Careers from the top navigation,
browse through our Current Opportunities, and then click Apply for a Position to submit an online application.
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Where can I find a guide that explains the GAFRI.com Web site?
Visit our Help page, which explains how GAFRI.com is organized and illustrates how to navigate through our site.
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Can I buy a product online?
At this time the companies of Great American Financial Resources, Inc., do not sell any products online. It is easy, however, to find your solutions on GAFRI.com and then
consult a financial professional who can provide you with all the specific product answers you need.
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How secure is GAFRI.com?
Please read through our security FAQs for detailed information about our Web site security.
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Where are GAFRI's offices located?
Visit our Contact Us section to quickly find the correct contact information (phone number, fax number, mailing address, and e-mail address) for your specific need.
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Tax-Sheltered Annuity (TSA) FAQs
What is 403(b) tax-sheltered annuity?
A 403(b) tax-sheltered annuity (TSA) is a long-term retirement savings program offered to employees
of certain educational and non-profit organizations. You put money into an annuity contract, and, in exchange,
your TSA company agrees to pay you an income in the future. The contributions you make to a TSA contract, as
well as your earnings, accumulate on a tax-deferred basis until you begin receiving annuity payments at
retirement.
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How does a tax-sheltered annuity (TSA) work?
During your working years, you contribute money to an annuity on a pre-tax basis through payroll
deduction. Any growth is tax deferred. When you retire, the savings and earnings from your TSA may be
withdrawn to help supplement a comfortable retirement. Certain withdrawals may be subject to charges.
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What does tax deferred mean?
Tax deferred means that you postpone paying taxes on the amount you contribute to your TSA and the
earnings until you start taking money out of your annuity contract (usually after you retire). The tax-deferred
component of a TSA helps you to reduce your current income taxes while you accumulate money for your
retirement.
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Who is eligible for a TSA?
You are eligible to participate in a TSA if you work for an organization that offers a 403(b) retirement
program, such as:
- A public school system (university, elementary, or high school).
- Other tax-exempt organizations – qualified under Internal Revenue Code section
501(c)(3). This may include hospitals, zoos, private schools, private colleges and universities,
museums, arts organizations, religious organizations, and research and charitable foundations.
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What are the key benefits of saving for retirement with a TSA?
Tax Advantages. A TSA helps reduce your current income taxes in two ways. First, the money you contribute
comes out of your salary before taxes – so the full amount you set aside (called the principal) can work
for you. Second, any earnings from your principal are also tax deferred – you pay no taxes on the principal
or earnings until you begin receiving payments at retirement. Withdrawals from your TSA prior to age 59½
are restricted by tax law and, when permitted, may be subject to a 10% tax penalty in addition to normal
income taxes, and certain withdrawals may be subject to charges.
The example below shows the benefits of TSA tax deferral versus saving for retirement with
after-tax contributions. In the example, when you contribute $4,500 per year ($375 per month) to a TSA,
you not only reduce your current taxes, but you also receive an additional $1,260 in take-home pay.
Tax Deferral. Your contributions to your TSA and its earnings can compound over the years, tax
deferred.
To see how this works, look at the example below, which shows your $100 biweekly contribution,
compounded biweekly at a 5% rate of return for both a tax-deferred and a traditional after-tax savings plan.
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What are the other benefits of a TSA?
Disciplined Savings. Because you contribute to a TSA through payroll deduction, saving on a regular
basis is easy. You determine the amount of money you want to contribute (within certain guidelines), and
how often.
Flexible Payout Options. When you reach retirement, you can withdraw your money in a number of ways.
One option, income for life, is only offered through an annuity.
Guaranteed Death Benefit. If you die before you begin receiving annuity payments, your beneficiary(ies)
will receive the money (minus any loans, charges, or applicable state premium taxes). Note: Death benefit
guarantees are supported by the claims-paying ability of the insurance company affiliated with Great American
Financial Resources®, Inc., that issues the product(s) you select.
Withdrawals and Loans. The money in your TSA is targeted for retirement, but if you need your money
in an emergency, in most cases you do have access to it through a low-interest loan or full or partial
withdrawals. Remember, withdrawals before age 59½ are restricted by tax law and, when permitted, may be
subject to a 10% tax penalty in addition to normal income taxes. Qualified loans are not taxable unless you
default on repayment.
Most annuities have a withdrawal charge in the early years of the annuity contract. This penalty
encourages you to leave your money in the contract so that it continues earning the maximum amount
possible for your retirement. Withdrawals and loans may reduce the contract value.
Service Credit Purchase. Funds from a TSA plan can be used to buy service credits or to buy back
forfeited years of service credits under a state retirement system. This direct transfer can occur at any time,
even if before age 59½. There will be no taxes or IRS penalties; however, product surrender charges and/or
proportionality (if applicable) will still apply.
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What are the benefits for low-income savers?
Certain lower-income taxpayers are eligible to receive a non-refundable tax
credit of up to $1,000 for elective contributions made to TSA plans. The credit is a percentage of the first
$2,000 contributed to an IRA, TSA, 401(k) plan, or governmental 457(b) plan. The credit percentage is based
on the taxpayer's modified Adjusted Gross Income under the following table:
The income brackets are to be adjusted for inflation annually.
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What restrictions apply to withdrawals?
The money in your TSA is intended for your retirement. Accordingly, withdrawals may be subject to charges, and withdrawals before age 59½ are
restricted by tax law. When permitted, however, withdrawals are fully taxable, and, if made before age 59½,
may be subject to a 10% tax penalty. Until you reach age 59½, you can only withdraw your pre-tax
contributions and related earnings if you sever employment with your employer, become disabled, incur a hardship
(as defined by the IRS), or die, or are a reservist called to active duty before 2008 for 180 days or more or
an indefinite period. Earnings cannot be distributed on account of a hardship.
After age 59½, there are no tax-law restrictions on withdrawals, although your employer may impose
restrictions if your TSA is part of an employer-sponsored retirement plan.
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How do I make contributions?
Once you decide to contribute to a TSA, you must complete two forms:
- An annuity enrollment application.
- A salary reduction agreement with your employer.
When you enter into such a salary reduction agreement, your gross salary will be reduced by an amount equal to the
contributions you wish to apply to your TSA. Your contribution is deducted automatically from your paycheck.
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When should I begin investing in a TSA?
Now. When you start saving may be as important as how much you save. The example below shows the power of
compounding principal and interest, and the impact of time in a tax-deferred annuity. In this example,
Karen, Bill, and Chris, all 25 years old, are considering saving $2,000 per year.
Karen decides to begin saving now. She saves for 10 years, then stops. Bill thinks he’s too young to
worry about retirement and decides to delay saving until he’s 35, at which point he’ll save until he is 65.
Chris decides to start saving now and continue until age 65.
Let’s assume that all three savings programs grow at a 6% rate of return* and have no taxes taken out.
Incredibly, in our example, Bill would contribute three times as much as Karen over
the years, but he’d retire with only about $7,000 more than Karen. The reason? Karen
is starting now. She has compound interest working for her. Chris, of course, is the real winner.
By starting now and saving until age 65, Chris would retire with as much as Bill and Karen combined.
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How much can I contribute to a TSA?
As of January 1, 2007, you may contribute up to 100% of your salary, to a maximum of
$15,500 per year.* This limit is to be adjusted annually for inflation. Additional
contributions in excess of the $15,500 limit may be allowed if you
are age 50 or older, or if you have 15 years of service with your employer. Your tax advisor
and agent can help you determine the amount you may contribute.
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Can I stop making contributions to my annuity or change the contribution amount?
Yes. You may stop contributing or change the contribution amount to your annuity at any time by contacting
your payroll department or agent. If you stop contributing, the amount that you’ve put in up until that point
will continue to grow on a tax-deferred basis until you begin making withdrawals. Please keep in mind that
even if you stop contributing due to a financial situation, you can always restart at any time in the future
without opening a new contract.
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Do I have access to my money before I retire?
Yes. Although you will enjoy the most dramatic growth when you keep your money in an annuity until
retirement, many TSAs have loan and withdrawal provisions:
Loans.* Provided you meet certain contract minimums, most TSA contracts** allow you to take a tax-free,
low-interest loan. Usually the payback period is five years, with regular payments required. If your purpose
is to purchase a primary residence, your term may be extended.
Withdrawals. Withdrawals are generally 100% taxable. If you’re under age 59½, withdrawals are
restricted by tax law, and, when permitted, you may have to pay a 10% tax penalty in addition to normal income
taxes.
- Partial Withdrawal. You may be able to withdraw part of the
money in your annuity without paying an early withdrawal charge to the insurance company. This option may
not be available in the first year.
- Full Withdrawal. If you wish to make a full withdrawal (take all of your money out
of the annuity), you may incur an early withdrawal charge.
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What if I change jobs?
Not a problem. You can keep contributing to your existing TSA if your new employer sponsors a 403(b)
program through Great American Financial Resources®, Inc.
If your new employer is not an eligible organization, you may be able to leave your
TSA money where it is, and it will continue growing, tax deferred. Although you won’t be able to
contribute additional funds to the annuity, your money will continue to grow.
Distributions from traditional IRAs, TSAs, 401 plans, and governmental 457 plans have broad portability.
Generally, the funds can be rolled from and into any of the above-mentioned plans if:
- The distribution is eligible for a rollover; and
- The new plan or provider is willing to accept the funds.
There may be other options available to you. You’ll want to discuss these with your agent and tax advisor.
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When can I begin receiving payments from my TSA?
The IRS restricts TSA distributions prior to age 59½, unless you experience an eligible triggering
event – severance from employment, disability, some financial hardship situations, and certain reservists called to
active duty before 2008. Provided you satisfy
one of these eligibility requirements, you can receive general payments in a lump sum (subject to contract
provisions), or by annuitizing your contract to receive a series of payments. Earnings cannot be distributed on
account of a hardship, nor can your contract be annuitized on account of a hardship.
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Do I have to take distributions when I reach age 59½?
No. However, according to tax law, you must begin taking certain required minimum
distributions (RMD) by the later of: (1) April 1 following the year in which you reach age
70½, or (2) April 1 following the year you sever employment.
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Will the distributions from my annuity contract affect my State Teachers Retirement Income?
No. Benefits under the State Teachers Retirement System (STRS) are calculated as though no deductions in
salary have been made. You will receive full STRS benefits at retirement.
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When does my contract mature?
Unlike a certificate of deposit (CD) at a bank, your annuity does not technically “mature” as of a certain
date. Your annuity can continue to grow tax-deferred until you are ready to commence distributions or until
you are required by tax law to start receiving a RMD. The Maturity Date (also called the Annuity Commencement
Date in some contracts) is set to the date of your 70th birthday as a reminder to you to review the need to
take a RMD.
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What are my payout options?
Depending on your annuity contract, there are a variety of payout options.
You may receive your money as lump sum payments or you can elect one of the Settlement Options as outlined
in your contract. Your annuity contract through one of the insurance subsidiaries of Great American Financial
Resources®, Inc., offers a variety of Settlement Options designed to satisfy your financial/retirement needs,
including life-based options that provide an income you cannot outlive. Your agent will be able to explain
each payout option and help you select the appropriate option to meet your goals and situation.
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Can I roll over my payout?
Most distributions from your TSA can be rolled over to another TSA or to an IRA, 401 plan, or governmental
457 plan. Required minimum distributions after age 70½, hardship distributions, and certain annuitization
payments cannot be rolled over. If you roll over a payment from your TSA, the tax on that payment will be tax
deferred.
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What taxes can I expect to pay when I receive my payout?
When you contribute to a TSA, the earnings on your principal grow tax deferred. When you begin
receiving annuity payments, the full amount of each payment is generally included in your taxable
income for federal income tax purposes. However, you may be in a lower tax bracket when you retire and
begin receiving your annuity payments. State and local taxes may also apply.
If withdrawals are made before age 59½, a 10% tax penalty may apply. Exceptions to this penalty
tax are available for certain distributions. Also, annuity contracts may contain charges that could impact your principal.
Before you withdraw funds from your TSA, check with your tax advisor for more information about the
taxation of annuities.
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What is a Roth TSA, and how is it different?
If permitted by your employer’s TSA program, you may designate your TSA contributions as Roth TSA contributions.
Roth contributions and related earnings must be separately tracked.
Unlike a traditional TSA contribution, a Roth TSA contribution comes out of your salary after taxes.
This means that there is no reduction in your taxes on account of the contribution. However,
a distribution of Roth TSA contributions and related earnings is completely free of federal income taxes
if it is a qualified distribution. To be a qualified distribution, two conditions must be met. First,
the distribution cannot be made during the five-year period that begins with the year of your first Roth TSA
contribution to your employer’s TSA program (or to a prior program from which a rollover was made). Second,
the distribution must be made after you reach age 59½, become disabled, or die.
A Roth TSA is subject to the same distribution restrictions that apply to a traditional TSA.
Until you reach age 59½, you can only take a distribution from a Roth TSA if you sever employment with
your employer, become disabled, incur a hardship (as defined by the IRS), die, or are a reservist called
to active duty before 2008 for 180 days or more or an indefinite period.
If, when permitted, you take a distribution that is not a qualified distribution, then there still is no
federal income tax on the portion of the distribution that represents your Roth TSA contributions. The
portion of the distribution that represents earnings will be subject to income tax, and a 10% tax penalty
may also apply if before age 59½.
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Are there any other costs associated with an annuity?
Sales charges, early withdrawal charges, administration fees, and other costs can vary from annuity to
annuity and from company to company – and the fees may be called different things. In general, most companies
offer annuities without "front-end" sales charges. This means you pay no sales charges up front.
Most annuities have early withdrawal charges – you pay a fee or penalty if you decide to withdraw funds from your
annuity before the end of a specified period (your contract will detail the penalties and time periods).
Some companies and some annuities waive the charge in certain cases: if you die, become disabled, or enter
a nursing home.
In addition, some annuity companies may charge a contract fee (also called a maintenance fee or
administration fee).
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Why choose a TSA from the insurance subsidiaries of Great American Financial Resources®, Inc.?
Experience, integrity, and financial strength.
Experience. Through our wholly owned subsidiaries, Annuity Investors Life Insurance
Company® and Great American Life Insurance Company®, we offer a full range of fixed,
fixed-indexed, and variable retirement annuities to meet your retirement goals and investment style.
Great American Life Insurance Company has been helping educators provide for their retirements since 1975.
Today, our companies service more than 6,000 educational institutions and continue to be leaders in the
tax-sheltered annuity business.
Integrity. The Cincinnati insurance operations of our insurance subsidiaries Great American Life®,
Loyal American Life, and Annuity Investors Life are members of the Insurance Marketplace
Standards Association (IMSA), an organization dedicated to promoting ethical conduct in the insurance
industry.
Financial Strength. When you select an insurance company, you want to be sure that the company
is financially strong. Our GAFRI insurance subsidiaries have been consistently rated strong in financial stability
and claims-paying ability by the top industry rating services. GAFRI is a wholly-owned subsidiary of American Financial Group, Inc., (AFG), a larger family of companies with more than 130 years of experience. AFG is listed on the New York Stock Exchange and NASDAQ, (Ticker: AFG). Our largest life insurance subsidiary, Great American Life Insurance Company®, is in the top 12 percent of stock
insurance companies based on net admitted assets (Best's Quarterly Statement File – L/H, US (2006 Six Month
Data), Version 2006.10). Our subsidiaries now offer consumers a range of financial resources,
including fixed, indexed, and variable annuities, and a variety of life, long-term care, and
supplemental insurance products.
Please contact your agent or tax advisor for more details on the benefits of annuities.
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