Tax sheltered annuities are good investments because they come out of your income straight from your employer. As a result contributions into a tax sheltered annuity, along with the income produced by them, are not taxable, that is until they are withdrawn.

If done correctly you can have your employer contribute money as well in order to get even more benefits. But before you take tax sheltered annuities seriously, you need to be aware of some things.

Limit of a maximum annual contribution

You might currently be in a position to contribute more money through your employer into your tax sheltered annuity. You must be aware of the maximum contributions limits though. The benefits you are able to get concerning taxes are only good if you do not go over this limit.

Seeing as how the entire goal is to minimize taxes and defer them until later in the future, it would do you no good if you exceed this limit.

Consequences of going over the limit of your tax sheltered annuity 

Even though you might be in a position where you can contribute more to you retirement plans at work such as this, going over the limit has tax consequences. One such consequence is the money you contribute over the maximum amount is taxed according to the tax bracket you are in.

How does this affect you? One, it negates the tax sheltered effect, and two it prevents you from being protected against inflation in the future. Seeing as how your money will have less value in the future, withholding taxes on your earnings protects against inflation.

Getting the most from tax sheltered annuity

You want to get all you can out of your contributions at work; this will also help to protect you against taxes and inflation. So make sure you are knowledgeable about such things like catch up clauses at work. Also make sure you know if your employer will be contributing to your plan as well. It would of course be best if your employer matched whatever you contributed in this instance.

As long as you understand the limits of a tax sheltered annuity you can prevent from negating the benefits of them. These types of investments are excellent when it comes to saving for retirement, and having money in them is far better than having it sitting in the bank where interest you draw will be taxed.