Massachusetts Life Producer Practice Exam

What do contributions to a TSA generally provide?

1. Taxable income in the year of contribution

2. Tax-deductibility for all contributions

3. Tax-deferred growth

4. Immediate tax credits

The correct answer is: Tax-deferred growth

Contributions to a Tax-Sheltered Annuity (TSA) are designed to provide tax-deferred growth, which means that the earnings on the investment are not taxable until the money is withdrawn, typically during retirement. This feature encourages individuals to save for their future by allowing their investments to grow without the immediate tax burden that would apply to other forms of income. This tax-deferred status makes it an advantageous savings option, particularly for those looking to build their retirement funds over time, as it maximizes the potential for compound growth. Through this mechanism, individuals can accumulate a larger retirement savings pot, as taxes on earnings do not impede growth until distributions are taken. In this context, the other options do not correctly describe the benefits of a TSA. For instance, while some contributions may be tax-deductible, this is not universal for all TSAs, and contributions themselves do not generate taxable income in the year they are made. Immediate tax credits are also unrelated to TSAs specifically, as they pertain to different tax benefits altogether.