West Virginia State Life Insurance Practice Exam

Who is typically recognized as the owner of a 403(b) tax-sheltered annuity?

1. The employer

2. The employee

3. The retirement plan trustee

4. The insurance company

The correct answer is: The employee

In the context of a 403(b) tax-sheltered annuity, the employee is recognized as the owner of the account. This type of retirement plan is designed primarily for employees of certain public schools and tax-exempt organizations, allowing them to save for retirement through pre-tax contributions. The employee has control over the investments and can choose how much to contribute, within certain limits. This distinction is important because it underscores the nature of the 403(b) as an individual retirement plan, similar to a 401(k), where the account holder is the one who benefits from tax deferral on contributions and investment earnings until withdrawal. The employee’s ownership means they are responsible for managing the account and can make decisions regarding contributions, distributions, and beneficiary designations. Furthermore, other parties mentioned, such as the employer or the trustee, may have roles in administering the plan or offering it, but they do not hold ownership of the annuity. The insurance company may provide the investment products but doesn't own the account either; rather, it serves as the custodian offering the annuity contract. This structure supports the individual nature of the 403(b) plan, aligning the benefits and responsibilities with the employee.