Question

Which of the following statements regarding a Tax Sheltered Annuity (TSA) is False?

A) Contributions made to a TSA are tax-deferred.
B) TSA contributions are subject to annual contribution limits set by the IRS.
C) TSA earnings grow tax-deferred until withdrawal.
D) Income derived from a TSA is received income tax-free.

Answer 1

The false statement about a Tax Sheltered Annuity (TSA) is that the income derived from it is received income tax-free. Contributions to a TSA are tax-deferred, subject to IRS limits, and earnings grow tax-deferred until withdrawal.

Thus the corret opction is:d

Step-by-step explanation:

The statement regarding a Tax Sheltered Annuity (TSA) that is false is D) Income derived from a TSA is received income tax-free.

Unlike Roth IRAs, which do allow for tax-free withdrawals, a TSA, like a Traditional IRA and 401(k), has tax-deferred contributions and earnings.

However, income received upon withdrawal is subject to taxation. Contributions to a TSA (Tax Sheltered Annuity) are indeed tax-deferred (A), and these contributions face annual contribution limits set by the IRS (B).

The earnings also grow tax-deferred (C), meaning you don't pay taxes on the interest, dividends, or capital gains until you withdraw the money.

Answer 2

A Tax Sheltered Annuity (TSA) is a retirement savings plan where contributions are made with pre-tax income and earnings grow tax-deferred. Contributions to a TSA are subject to annual limits set by the IRS. Income derived from a TSA is not received income tax-free. Option D.

Step-by-step explanation:

A Tax Sheltered Annuity (TSA) is a type of retirement savings plan that allows individuals to contribute pre-tax income towards investments that can grow tax-deferred.

This means that contributions made to a TSA are not taxed until they are withdrawn. So, statement A) is true.

Statement B) is also true. TSA contributions are subject to annual contribution limits set by the IRS. For 2021, the contribution limit for a TSA is $19,500, with an additional catch-up contribution of $6,500 if the individual is aged 50 or older.

Statement C) is also true. In a TSA, the earnings on investments grow tax-deferred until withdrawal.

However, statement D) is false. Income derived from a TSA is not received income tax-free. When funds are withdrawn from a TSA, they are subject to income tax.

Hence, the right answer is option D.