What Are Tax Sheltered Annuities? 
An employer can establish a plan in which contributions are deducted from the employees reported income and the money is invested in an annuity . The money placed in the annuity and the interest that it earns are not subject to current income tax . The benefits , when withdrawn are taxable as ordinary income . The best known Tax Sheltered Annuity is allowed under section 403 -LRB- b -RRB- of the Internal Revenue Code . 