Which type of retirement plan is characterized by being tax sheltered?

The tax sheltered annuity (TSA) is recognized as a retirement plan that provides tax advantages by allowing contributions to be made with pre-tax dollars, thereby reducing taxable income in the year contributions are made. This means that the money can grow tax-deferred until withdrawals are taken during retirement, at which point those withdrawals may be taxed as ordinary income.

This characteristic of being tax sheltered is pivotal for many individuals planning for retirement, as it allows them to accumulate more funds over time without the immediate tax burden on their contributions. The other retirement plans mentioned, while also having tax benefits, operate under different structures. For instance, traditional IRAs and 401(k) plans are also tax sheltered but differ in terms of contributions and withdrawals. Roth IRAs are funded with after-tax contributions, meaning that while they grow tax-free, they are not sheltered from taxes at the time of contribution. Each plan serves unique financial strategies, but the defining feature of a tax sheltered annuity is its specific format for accumulating tax-advantaged funds for retirement.