Page 6 - 000 Complete EBook - 403(b) & 457(b) Test 12202017 1

WHAT ARE TAX SHELTERS

First of all, what is a Tax Shelter?

A Tax Shelter is a financial arrangement by
which a person can postpone or minimize
income paying taxes. This is a legal method of
minimizing or decreasing your taxable income
and, therefore, your tax liability.

In layman's terms, it is putting money into an
account that accumulates value BEFORE

paying Federal and State tax on that money.
This Tax Deferral side of a shelter determines
when you will pay taxes on the money.

Tax deferral is the postponement of paying tax
as values accumulate in an investment or savings
until such time as you withdrawal the funds.
Taxes are then due on the amount you
withdrawal.

If you work for a State government, County government, City Government or Public
School System you have the opportunity to participate in a tax shelter.

The Internal Revenue Service names tax shelters by the section of the Internal Revenue
Code the shelter is under. You have probably heard the terms 403(b), 457(b), and 401(k)
which all come from their representative sections of the Internal Revenue Code.

The two most common Tax Shelters in government are Tax Sheltered Annuities under
Section 403(b) commonly referred to as a TSA, and Deferred Compensation Plans under
Section 457(b) of the Internal Revenue Code. The need to shelter income is very important
to a sound financial retirement and most public schools and many local governmental
entities offer one or both of these plans.

Keep in mind that your cafeteria plan, health insurance, and other employee benefits (i.e.
cancer plan, vision, dental, etc.) are not in a tax shelter. Tax shelters accumulate and
shelter money in assets for future use.

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