Publication 571 - Tax-Sheltered Annuity Plans (403(B) Plans) For Employees Of Public Schools And Certain Tax-Exempt Organizations Page 23

later than April 15 of the year following the year

•

Excess amount, or

the excess deferral was made.

•

Excess deferral.

11.

Tax treatment of excess deferrals. If the ex-

Excess Amount

cess deferral is distributed no later than April 15,

it is included in your income in the year contrib-

An excess amount is a contribution that is more

Excess

uted and the earnings on the excess deferral will

than your MEA or your limit on annual additions.

be taxed in the year distributed.

Contributions

Example. William’s MAC for 2000 was

Amounts in excess of MEA. Amounts that

$10,500. All of William’s contributions were

are more than your MEA will be included in your

made through salary reductions. He contributed

income in the year of the excess contribution.

If your actual contributions are greater than your

$11,500 in 2000, an excess deferral of $1,000.

MAC, you have an excess contribution. Excess

Note. There is no MEA for years beginning

He notified his plan administrator and his em-

contributions can result in income tax, additional

after 2001.

ployer of the excess contribution on March 15,

taxes, and penalties. The effect of excess contri-

butions depends on the type of excess contribu-

2001, and the excess deferral was distributed on

tion. This chapter discusses excess

April 13, 2001. Because the excess deferral was

Amounts in excess of limit on annual addi-

contributions to your 403(b) account.

distributed before April 15, 2001, the excess

tions. In the year that your contributions are

more than your limit on annual additions, the

deferral will be included in his income for 2000,

excess amount will be included in your income.

and any earnings on the excess is included in

his income in the year they are distributed.

Amounts in excess of the limit on annual

Preventing Excess

additions that are due to elective deferrals may

If you do not receive a distribution of excess

be distributed if the excess contributions were

elective deferrals by April 15 of the year follow-

Contributions

made for any one of several reasons, including:

ing the year it is contributed, it will be included in

your earned income in the year contributed and

•

To prevent excess contributions, you should fig-

A reasonable error in determining the

in the year distributed.

ure your MAC at the beginning of each year

amount of elective deferrals that could be

using a reasonable estimate of compensation.

made under the limit on annual additions,

Example. Assume that, in the previous ex-

If, at any time during the year, your employment

ample, a distribution of the excess deferral was

status or your compensation changes, you

•

A reasonable error in estimating your com-

not made to William by April 15, 2001. Because

should refigure your MAC using a revised esti-

pensation.

the distribution was not made timely, the excess

mate of compensation.

deferral will be taxed in 2000 (the year contrib-

uted) and again in the year the excess deferral is

Excess Deferral

distributed. The earnings on the distribution will

How Do I Know If I

be taxed in the year they are distributed.

An excess deferral is the amount that is more

than your limit on elective deferrals. To deter-

Have Excess

Excise Taxes

mine your limit on elective deferrals, see chapter

Contributions?

If your 403(b) account invests in mutual funds,

Your employer’s 403(b) plan may contain

and you exceed either your limit on annual addi-

language permitting it to distribute excess defer-

At the end of the year or the beginning of the

tions or your MEA, you may be subject to a 6%

rals. If so, it may require that, in order to get a

next year, you should refigure your MAC based

excise tax on the excess contribution. The ex-

distribution of excess deferrals, you either notify

on your actual compensation and actual contri-

cise tax does not apply to funds in an annuity

the plan of the amount of excess deferrals or

butions made to your account.

account or to excess deferrals.

designate a distribution as an excess deferral.

If the actual contributions to your account are

You must pay the excise tax each year in

The plan may require that the notification or

greater than your MAC, you have excess contri-

which there are excess contributions in your

designation be in writing and may require that

butions.

you certify or otherwise establish that the desig-

account. Excess contributions can be corrected

Worksheet 6. Calculation of Excess 403(b)

nated amount is an excess deferral. A plan is not

by contributing less than the applicable limit in

Contributions for 2001, can be used to figure the

required to permit distribution of excess defer-

later years or by making permissible distribu-

amount, if any, of excess contributions and help

rals.

tions.

you identify the type of excess contribution.

You cannot deduct the excise tax.

Worksheet 6 is in chapter 13.

Correction of excess deferrals during year.

If you have excess deferrals for a year, a correc-

Permissible distributions. A permissible dis-

tive distribution may be made only if both of the

tribution is a distribution that can be made when

following conditions are satisfied.

What Happens If I Have

one of the following events occurs.

•

You or your employer designate the distri-

•

Excess Contributions?

You reach age 59

bution as an excess deferral to the extent

•

You have a severance from employment.

you have excess deferrals for the year.

Certain excess contributions in a 403(b) account

•

You die.

The correcting distribution is made after

can be corrected. The effect of an excess 403(b)

the date on which the excess deferral was

•

contribution will depend on the type of excess

You become disabled.

made.

contribution.

•

In the case of salary reduction contribu-

tions, you encounter financial hardship.

Correction of excess deferrals after the year.

Types of excess contributions. If, after

If you have excess deferrals for a year, you may

checking your actual contributions, you deter-

Reporting requirement. You must file Form

receive a corrective distribution of the excess

mine that you have an excess, the first thing is to

5330 if there has been an excess contribution to

deferral no later than April 15 of the following

identify the type of excess that you have. Excess

year. The plan can distribute the excess deferral

a custodial account and that excess has not

contributions to a 403(b) account are catego-

rized as either an:

(and any income allocable to the excess) no

been corrected.

Chapter 11 Excess Contributions

Page 23

0 votes

Top 20 Happy Easter Cards And Gift Tags To Download For Free

Top Ten Easter Arts And Crafts Activities For Your Kids

Free Easter Coloring Pages And Easter Printables For Your Kids

Related forms

Form 5306-a - Application For Approval Of Prototype Simplified Employee Pension (sep) Or Savings Incentive Match Plan For Employees Of Small Employers (simple Ira Plan) Financial

Form 5304-simple - Savings Incentive Match Plan For Employees Of Small Employers (simple) - Not For Use With A Designated Financial Institution Financial

Form 5305-simple - Savings Incentive Match Plan For Employees Of Small Employers (simple) - For Use With A Designated Financial Institution Financial

Form 5305-simple - Savings Incentive Match Plan For Employees Of Small Employers (simple) For Use With A Designated Financial Institution Financial

Form 5304-simple - Savings Incentive Match Plan For Employees Of Small Employers (simple) - Not For Use With A Designated Financial Institution Financial

Related Categories

Parent category: Financial

Publication 571 - Tax-Sheltered Annuity Plans (403(B) Plans) For Employees Of Public Schools And Certain Tax-Exempt Organizations Page 23

Related Articles

Related forms

Related Categories