TSA/403(b) Plans

A TSA/403(b) is a plan which allows employees of educational institutions and certain organizations to make pre-tax contributions towards their retirement savings. Contributions and any investment earnings in a TSA/403(b) grow tax deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income.

Eligibility Requirements

• You must be an employee of a public school system or an organization under Section 501(c)(3) of the Internal Revenue Code, including but not limited to the following; non-profit hospital, religious organization, humane society, social welfare agency, charitable institution, museum, symphony orchestra, zoo, library or public university
• Your employer must make a non-ERISA TSA/403(b) plan available to employees
• In most cases, State Farm must be an approved vendor (for salary reduction contributions)
  Note: State Farm has elected to not accept employer contributions on ERISA plans.

If your employer is uncertain about its eligibility/501(c) (3) status, they can refer to IRS Publication 557 (PDF 419 KB) or see IRS Publication 571 (PDF 147 KB) , which covers 403(b) plans.

Contribution Flexibility

Elective Deferral Contribution: A deferred contribution arrangement of an employer-sponsored retirement plan under which participants can choose to set aside part of their compensation (via employee paycheck) as a pre-tax contribution to the plan.

With a TSA or 403(b) plan, you invest part of your income for your future via a salary reduction agreement. Your employer will provide you a list of approved vendors where your contributions can be directed. Once selected, your contributions are then sent to a company such as State Farm.

Tax Advantages

A TSA/403(b) account is a cost-effective way to save for retirement by contributing a percentage of your salary to an account you control.

• TSA/403(b) contributions are made on a pre-tax basis, which reduces a participant's current taxes. For example, a contribution of $100 a month could reduce current Federal Income taxes by roughly $25/month (assuming a 25% marginal tax bracket).
• Dividends, interest, and capital gains accumulate in a TSA/403(b) account on a tax-deferred basis.
• Distributions are taxed as ordinary income, which may be at a lower rate after retirement.

When you contribute to your TSA, you postpone income taxes until you withdraw the money from the TSA potentially letting you accumulate even more for your future.

Reasons to Invest

There are no guarantees in investing, but following these three steps could help improve your odds:

• Start early. Invest as soon as you can afford it, so you can give your money more time to grow. That little bit you put away in your TSA/403(b) today may mean a lot for your future.
• Don't put it off. If you don't yet take part in your employer's TSA/403 plan, what are you waiting for? Even if you can't afford much, invest what you can afford.
• When you can, save more. If you do contribute, could you contribute more? Take advantage of the annual "catch-up" contributions if you are age 50 or older. The more you save, and the longer you let your savings grow, the more money you may have for your later years.

Funding Options

• Deferred Life Annuity and Variable Deferred Annuity
• State Farm Mutual Funds®

The funds you choose should depend on your time horizon and your risk tolerance.

State Farm VP Management Corp Risk/Important Disclosures. State Farm Mutual Funds Prospectus. The State Farm College Savings Plan Enrollment Handbook (PDF 417 KB) .

Investment return and principal value will fluctuate and your investment, when redeemed, may be worth more or less than its original cost.

It is important to note that there is market risk involved when investing in mutual funds, including possible loss of principal.

In a tax-qualified retirement plan, federal income tax deferral treatment is provided by the plan.  If an annuity is used to fund the retirement plan, no additional tax deferral treatment is provided by the annuity.

Investing in a variable annuity is generally suitable for long-term investing such as retirement savings. You should consider your financial situation before investing.

AP2007/12/9737