Publication 571 - Tax-Sheltered Annuity Plans (403(B) Plans) Page 12
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21you may be subject to a 6% excise tax on the
excess contribution. The excise tax does not
7.
8.
apply to funds in an annuity account or to excess
deferrals.
You must pay the excise tax each year in
Distributions
Excess
which there are excess contributions in your
account. Excess contributions can be corrected
and Rollovers
Contributions
by contributing less than the applicable limit in
later years or by making permissible distribu-
tions. See
chapter 8
for a discussion on permis-
sible distributions.
If your actual contributions are greater than your
Distributions
MAC, you have an excess contribution. Excess
You cannot deduct the excise tax.
contributions can result in income tax, additional
taxes, and penalties. The effect of excess contri-
Permissible distributions. Generally, a dis-
butions depends on the type of excess contribu-
Reporting requirement. You must file Form
tribution cannot be made from a 403(b) account
tion. This chapter discusses excess
5330 if there has been an excess contribution to
until the employee:
contributions to your 403(b) account.
a custodial account and that excess has not
•
Reaches age 59
/
,
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been corrected.
2
•
Has a severance from employment,
Excess Elective Deferral
How Do I Know If I
•
Dies,
Have Excess
•
An excess elective deferral is the amount that is
Becomes disabled,
more than your limit on elective deferrals. To
•
In the case of salary reduction contribu-
Contributions?
determine your limit on elective deferrals, see
tions, encounters financial hardship, or
chapter
4.
•
Has a qualified reservist distribution.
At the end of the year or the beginning of the
Your employer’s 403(b) plan may contain
next year, you should refigure your MAC based
language permitting it to distribute excess defer-
In most cases, the payments you receive or
on your actual compensation and actual contri-
rals. If so, it may require that in order to get a
that are made available to you under your 403(b)
butions made to your account.
distribution of excess deferrals, you either notify
account are taxable in full as ordinary income. In
If the actual contributions to your account are
the plan of the amount of excess deferrals or
general, the same tax rules apply to distributions
greater than your MAC, you have excess contri-
designate a distribution as an excess deferral.
from 403(b) plans that apply to distributions from
butions. If, at any time during the year, your
other retirement plans. These rules are ex-
The plan may require that the notification or
employment status or your compensation
plained in Publication 575. Publication 575 also
designation be in writing and may require that
changes, you should refigure your MAC using a
discusses the additional tax on early distribu-
you certify or otherwise establish that the desig-
revised estimate of compensation to prevent
tions from retirement plans.
nated amount is an excess deferral. A plan is not
excess contributions.
required to permit distribution of excess defer-
Retired public safety officers. If you are an
rals.
eligible retired public safety officer, distributions
What Happens If I Have
of up to $3,000, made directly from your 403(b)
plan to pay accident, health, or long-term care
Correction of excess deferrals during year.
Excess Contributions?
insurance, are not included in your taxable in-
If you have excess deferrals for a year, a correc-
come. The premiums can be for you, your
tive distribution may be made only if both of the
spouse, or your dependents.
following conditions are satisfied.
Certain excess contributions in a 403(b) account
A public safety officer is a law enforcement
can be corrected. The effect of an excess 403(b)
•
officer, fire fighter, chaplain, or member of a
You or your employer designate the distri-
contribution will depend on the type of excess
rescue squad or ambulance crew.
bution as an excess deferral to the extent
contribution.
For additional information, see Publication
you have excess deferrals for the year.
575.
Types of excess contributions. If, after
•
The correcting distribution is made after
checking your actual contributions, you deter-
the date on which the excess deferral was
Distribution for active reservist. The 10%
mine that you have an excess, the first thing is to
made.
penalty for early withdrawals will not apply to a
identify the type of excess that you have. Excess
qualified reservist distribution attributable to
contributions to a 403(b) account are catego-
elective deferrals from a 403(b) plan. A qualified
Correction of excess deferrals after the year.
rized as either an:
reservist distribution is a distribution that is
If you have excess deferrals for a year, you may
•
made:
Excess annual addition, or
receive a corrective distribution of the excess
•
•
Excess elective deferral.
deferral no later than April 15 of the following
To an individual who is a reservist or na-
tional guardsman and who was ordered or
year. The plan can distribute the excess deferral
called to active duty for a period in excess
(and any income allocable to the excess) no
Excess Annual Addition
of 179 days or for an indefinite period; and
later than April 15 of the year following the year
the excess deferral was made.
•
During the period beginning on the date of
An excess annual addition is a contribution that
the order or call to duty and ending at the
is more than your limit on annual additions. To
close of the active duty period.
determine your limit on annual additions, see
Tax treatment of excess deferrals not attribu-
chapter 3 (chapter 5
for ministers or church
table to Roth contributions. If the excess
employees).
Minimum Required
deferral is distributed by April 15, it is included in
In the year that your contributions are more
Distributions
your income in the year contributed and the
than your limit on annual additions, the excess
earnings on the excess deferral will be taxed in
amount will be included in your income.
You must receive all, or at least a certain mini-
the year distributed.
mum, of your interest accruing after 1986 in the
403(b) plan by April 1 of the calendar year fol-
Excise Tax
Tax treatment of excess deferrals attributa-
lowing the later of the calendar year in which you
ble to Roth contributions. For these rules,
If your 403(b) account invests in mutual funds,
become age 70
/
, or the calendar year in which
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see Regulations section 1.402(g)-1(e).
and you exceed your limit on annual additions,
you retire.
Chapter 8 Distributions and Rollovers
Page 12
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