If you are under the age of 59, additional tax penalties may apply if you withdraw money from a
tax-deferred annuity.
Tax-deferred annuity plans--403(b) and 457 plans--also are used widely by public-sector and nonprofit workers.
Properly set up, a legal fee structure takes the lump sum that would otherwise go to the client and puts it to work in a
tax-deferred annuity. The lawyer pays tax only as he or she receives the periodic payments.
She started putting $10 from each paycheck into a
tax-deferred annuity in 1969, increased it whenever she got a raise, and ended up with "a very nice contribution to our nest egg" when she retired in 1996.
By comparison, Eugene School Superintendent George Russell - whose salary is $116,802 - receives PERS contributions totaling 17 percent of salary and just less than $20,000 per year, along with a district-paid
tax-deferred annuity that totals $18,000 in contributions per year.
Had these same taxpayers been invested in those same mutual funds through a
tax-deferred annuity, the funds would have shrunk but they would not have had to pay tax on phantom income.
Bergin, archdiocesan vicar for education, said the Catholic High School Association, which represents the 10 schools, would "significantly increase the amount of matching money contributed to the teachers'
tax-deferred annuity program." Bergin said teachers have been assured their health insurance payments would not increase during the new contract.
A large part of the difference is due to the non-profit tax status of hospitals that provide
tax-deferred annuity 403(b) plans versus 401(k) plans.