What is true regarding distributions from a 403(b) tax sheltered annuity?

The correct answer is that distributions from a 403(b) tax-sheltered annuity are generally 100% taxable when they are distributed. This taxation applies to the entire amount withdrawn, as tax-sheltered annuities are typically funded with pre-tax dollars. This means that the contributions made to the 403(b) plan reduce an individual’s taxable income for the year in which they were made, and taxes on those funds are deferred until withdrawal.

When you take a distribution from a 403(b), regardless of whether the withdrawal is from earnings or contributions, the entire amount is subject to income tax at your ordinary income tax rate for that year. This differs from the treatment of some other forms of retirement accounts where only earnings could be taxed while contributions may not be due to having already paid taxes on them prior to deposit.

In contrast, the other options imply different situations regarding taxation which do not align with the standard rules governing 403(b) distributions. For example, some may suggest that withdrawals could be tax-free or only partly taxable under certain conditions, or that taxes apply solely to early withdrawals, but those circumstances do not fully capture the tax implications of distributions from a 403(b) plan. It is important to consider the specific