In Tax Sheltered Annuity an employee can contribute money in retirement plan from their income. If one becomes the annuitant of tax sheltered annuity or contributes for retirement from income then the contributed money is deducted from the salary of employee and he gains the benefit that the contributed money is not considered taxable until the withdraw. Because the employer can also make direct contributions to the plan, the employee gains the benefit of having additional tax-free funds accruing.

Tax sheltered annuity provides very beneficial features and is considered much solid investment as compared to traditional saving accounts or certificates of deposit (CDs).. Many retirees are making investment in this annuity. Tax sheltered annuity have various advantages like it provides competitive interest rates, lifetime and limited or selected time income option, tax deferred interest accumulation and safety of principal and interest.

A tax sheltered annuity allows for a higher effective investment return by accumulating income on a tax deferred basis. An additional feature of tax sheltered is that the incone tax on the growth of invested money is postponed until the fund is withdrawn by the investor from the plan. In short it can be concluded that growth on invested money is not taxed until the money withdrawn from the plan. Furthermore another special benefit offered by tax sheltered annuity is that the money withdrawn from the plan will be taxable but at the normal income tax rate.