Who qualifies for tax-sheltered annuities, or 403(b) plans?

Tax-sheltered annuities, or 403(b) plans, are specifically designed for certain types of employees, primarily those working in educational institutions and eligible nonprofit organizations. This includes employees of public school systems, public universities, and other nonprofit organizations that fit the requirements set forth by the Internal Revenue Service (IRS).

The distinctive feature of a 403(b) plan is its tax advantages aimed at encouraging retirement savings among individuals working in these sectors. Contributions made to a 403(b) plan are often pre-tax, which means they are deducted from gross income before taxes are calculated, thus reducing taxable income for the employee. This benefit is particularly significant for employees in nonprofit and educational roles, as it supports their retirement planning through provisions not available in other types of employer-sponsored retirement plans.

In contrast, employees of large corporations typically participate in 401(k) plans, self-employed individuals have access to different retirement accounts such as SEP IRAs or Solo 401(k) plans, and while government employees may have specific retirement plans available to them, they do not qualify for 403(b) plans unless they are employed in qualifying public educational institutions or certain nonprofit entities. Therefore, the correct answer captures the unique eligibility scope for 403(b) plans as