AD Banker Comprehensive Practice Exam

A non-school employer can set up a TSA plan for their employees under which of the following IRC sections?

1. 501(c)(3)

2. 401(k)

3. 408(a)

4. 403(b)

The correct answer is: 501(c)(3)

A non-school employer can set up a Tax-Sheltered Annuity (TSA) plan under IRC section 403(b). This section allows for certain types of tax-advantaged retirement plans, specifically designed for employees of non-profit organizations, such as 501(c)(3) entities, and certain public school systems. The focus of a TSA plan is to provide employees with a way to save for retirement on a tax-deferred basis, which means that contributions are made before taxes and income tax is paid when funds are withdrawn. This can be an attractive option for non-profit employers, as it allows them to offer valuable retirement benefits to their employees. In contrast, while IRC section 401(k) is a common retirement plan for many employers, it typically applies to for-profit entities. Section 408(a) refers to Individual Retirement Accounts (IRAs) and does not pertain to employers setting up TSA plans. Option 501(c)(3) denotes a type of non-profit organization rather than a specific IRC section governing retirement plans. Thus, for non-school employers interested in establishing a TSA, IRC section 403(b) is the appropriate reference.