Publication 571 - Tax-Sheltered Annuity Plans (403(B) Plans) For Employees Of Public Schools And Certain Tax-Exempt Organizations Page 15

You can elect any one of the three alternative

Figuring MAC using the any year limit. You

limits, but with certain restrictions. For example,

can use Worksheet 4 to figure your MAC using

you cannot make more than one election per

the any year limit.

employer and, once an election is made, it is

irrevocable and another alternative limit cannot

be selected in a subsequent year. However, you

Alternative

Overall Limit

can still choose to apply the general rule in any

year.

Additionally, certain employees of churches

Limits on Annual

If you have not elected to use another alternative

or church-related organizations might be eligible

limit in a prior year, you can use the overall limit.

for other special elections that can be used to

If you elect the overall limit, you must com-

Additions

figure MAC. See chapter 7.

bine employer contributions to your 403(b) plan

with all employer contributions to qualified plans

to determine if the limit on annual additions has

This chapter applies only to contribu-

been exceeded. Additionally, in the year that

Year of Separation

tions made in 2001. For years begin-

you use the overall limit, you do not figure the

ning after 2001, the alternative limits on

CAUTION

From Service Limit

MEA.

annual additions have been repealed. For infor-

mation on figuring your limit on annual additions

Figuring MAC using the overall limit. You

If you have not elected to use an alternative limit

for 2002, see chapter 9.

can use Worksheet 3 to figure your MAC using

in a prior year, you can use the year of separa-

the overall limit.

Certain employees can choose to increase their

tion from service limit for the limitation year that

MAC by electing an alternative limit on annual

ends with or within the year you stopped working

additions. There are three alternative limits.

for the employer who maintained your 403(b)

•

account. If you elect this limit, you use a different

The year of separation from service limit.

How To Elect an

method to figure your MEA and your limit on

•

The any year limit.

annual additions.

Alternative Limit

•

The overall limit.

Changes to the MEA. If you elect the year of

separation from service limit, you figure your

You make the election to use an alternative limit

This chapter will discuss the following topics.

MEA taking into account only your last 10 years

on annual additions by figuring your tax using

•

of service with the employer who maintained

Who is eligible to use an alternative limit.

that limit. The election is considered made only if

your 403(b) account and only amounts excluda-

use of the alternative limit is needed to support

•

Each of the alternative limits.

ble during your last 10 years of service with that

the exclusion from income shown on your in-

•

employer.

How to elect an alternative limit.

come tax return.

If you do not have 10 years with your em-

ployer, your years of service is the actual

The general limit on annual additions is dis-

Election is irrevocable. If you elect to use an

amount of years you do have with your em-

cussed in chapter 4.

alternative limit, you cannot change the election.

ployer. Your amount previously excludable is

One election allowed. If you elect one of

Effect of election. Generally, the election to

the total contributions excluded in previous

the alternative limits, you cannot elect to have

use either the any year limit or the year of sepa-

years plus any excess contributions for those

any of the other alternative limits apply for 2001

ration from service limit allows you to exclude

years that were more than your limit on annual

for any 403(b) contract purchased for you by the

from gross income a larger amount of employer

additions.

employer.

contributions than would have been allowed

Changes to the limit on annual additions.

If in a previous year, you have elected either

under the general rule that limits employer con-

Under the year of separation from service limit,

the any year limit or the overall limit, that limit is

tributions to 25% of your compensation. If you

your limit on annual additions is the lesser of:

the only alternative limit you can use in 2001 to

elect to use the overall limit, you may be able to

•

figure your limit on annual additions.

exclude a larger amount because you can disre-

35,000, or

gard the MEA that would otherwise apply.

•

Your MEA.

Example. Janice is employed as a teacher.

Excess contributions. If employer contribu-

In 1999, she used the any year limit. In 2000 and

tions were included in your income for a tax year

2001, if Janice is working for the same em-

Figuring MAC using the year of separation

because they exceeded any of these alternative

ployer, she can use only the general rule or the

from service limit.

limits for that year, the excess reduces the

any year limit on annual additions.

If you have elected the year of separation from

amount of your MEA for later years, even though

service limit, use Worksheet 2 to figure your

the excess has already been included in your

Amending a return to take advantage of an

MAC.

income.

alternative limit. You can amend an earlier

year’s tax return to elect an alternative limit on

annual additions.

Any Year Limit

Generally, you must file an amended return

Who is Eligible to Use

by the later of the following.

If you have not elected to use another alternative

an Alternative Limit

•

3 years from the date you filed your origi-

limit in an earlier year, you can use the any year

nal return for the year.

limit on annual additions.

If you were an eligible employee (as described in

•

2 years from the time you paid your tax for

chapter 1) of one of the following organizations,

Changes in the limit on annual additions.

that year.

Your limit on annual additions under the any

you can use an alternative limit on annual addi-

A return filed early is considered filed on the due

year limit is the least of:

tions.

date.

•

$15,000,

Public schools or public school systems.

If you amend an earlier year’s return to elect

•

Hospitals.

$4,000 plus 25% of your includible com-

an alternative limit and use of that limit increases

pensation for the year in which the limita-

•

your tax for that year, any additional tax due to

Home health service agencies.

tion year ends, or

the use of the alternative limit is not treated as

•

Health and welfare agencies.

•

an underpayment of tax for the penalty for failure

Your MEA for the year in which the limita-

•

to pay estimated income tax.

Churches or church-related organizations.

tion year ends.

Chapter 6 Alternative Limits on Annual Additions

Page 15

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