Publication 571 - Tax-Sheltered Annuity Plans (403(B) Plans) For Employees Of Public Schools And Certain Tax-Exempt Organizations Page 8
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37May of 2001 and her service performed during
Includible compensation does include the fol-
mium, you will need to determine the amount of
October through December of 2001.
lowing amounts.
the premium and subtract it from your includible
compensation.
•
Elective deferrals (employer’s contribu-
To determine the amount of the life insur-
tions made on your behalf under a salary
Figuring Your Most Recent Year of
ance premiums you will need to know the follow-
reduction agreement).
Service
ing information.
•
Amounts contributed or deferred by your
•
The value of your life insurance contract,
employer under a section 125 cafeteria
To figure your most recent year of ser-
which is the amount payable upon your
plan.
vice, begin by determining what consti-
death.
•
tutes a full year of service for your
Amounts contributed or deferred, at the
•
The cash value of your life insurance con-
position. A full year of service is equal to full-time
election of the employee, under an eligible
tract at the end of the tax year.
employment for your employer’s annual work
section 457 nonqualified deferred com-
•
period.
pensation plan (state or local government
Your age on your birthday nearest the be-
After identifying a full year of service, begin
or tax-exempt organization plan).
ginning of the policy year.
counting the service you have provided for your
•
•
Wages, salaries, and fees for personal
Your current life insurance protection
employer starting with the service provided in
services earned with the employer main-
under an ordinary retirement income life
the current year. To help you count your years of
taining your 403(b) account.
insurance policy, which is the amount pay-
service, follow the rules discussed under Figur-
able upon your death minus the cash
•
ing Your Years of Service, earlier.
Income otherwise excluded under the for-
value of the contract at the end of the
eign earned income exclusion.
year.
•
Part-time or employed only part of year. If
The value of qualified transportation fringe
you are a part-time employee, or a full-time
benefits.
Example. Your new contract provides that
employee who is employed for only part of the
your beneficiary will receive $10,000 if you
year, your most recent year of service consists
Includible compensation does not include the
should die anytime before retirement. Your cash
of your service this year and your service for as
following items.
value in the contract at the end of the first year is
many previous years as is necessary to total one
zero. Your current life insurance protection for
full year of service. You add up your most recent
1) Your employer’s contributions to your
the first year is $10,000 ($10,000 minus 0).
periods of service to determine your most recent
403(b) account.
The cash value in the contract at the end of
year of service. First, take into account your
2) Compensation earned while your employer
year two is $1,000, and the current life insurance
service during the year for which you are figuring
was not an eligible employer.
protection for the second year is $9,000
the MEA (the limit on annual additions for 2002).
($10,000 – $1,000).
Then add your service during your next preced-
3) Your employer’s contributions to a quali-
You can use Worksheet B in chapter 13 to
ing tax year, and years before that, until your
fied plan that:
determine the cost of your life insurance.
total service equals one year of service.
a) Are on your behalf, and
The one-year cost of the protection can be
calculated by using Figure 3-1, Uniform
Example. You were employed on a full-time
b) You can exclude from income.
One-Year Term Premiums for $1,000 Life Insur-
basis during the months July through December
ance Protection. The premium rate is deter-
1999 (1/2 year of service), July through Decem-
4) Contributions that are more than your
mined according to your age on your birthday
ber 2000 (1/2 year of service), and October
MEA.
nearest the beginning of the policy year.
through December 2001 (1/4 year of service).
5) The cost of incidental life insurance.
Your most recent year of service for purposes of
Figure 3-1. Uniform One-Year Term
computing your MEA for 2001 is the total of your
Premiums for $1,000 Life Insurance
service during 2001 (1/4 year of service), your
Note. If you are a church employee or a
Protection
service during 2000 (1/2 year of service), and
foreign missionary, figure includible compensa-
[Based on Table 38, U.S. Life Table and
your service during the months October through
tion for 2001 using the method explained in
Actuarial Table (U.S. Government Printing
December 1999 (1/4 year of service).
chapter 7. For information on figuring includible
Office, Washington, D.C. – 1946), and 2
1
/
%
2
compensation for 2002 see chapter 9.
interest.]
Not yet employed for one year. If, at the
close of the year, you have not yet worked for
Age
Cost
Age
Cost
your employer for one year (including time you
Cost of Incidental Life Insurance
15 . . . .
$1.27
49 . . . .
$8.53
worked for the same employer in earlier years),
16 . . . .
1.38
50 . . . .
9.22
use the period of time you have worked for the
Includible compensation does not include the
17 . . . .
1.48
51 . . . .
9.97
employer as your most recent year of service.
cost of incidental life insurance.
18 . . . .
1.52
52 . . . .
10.79
19 . . . .
1.56
53 . . . .
11.69
Includible Compensation
Note. If all of your 403(b) accounts invest
20 . . . .
1.61
54 . . . .
12.67
only in mutual funds, then you have no incidental
21 . . . .
1.67
55 . . . .
13.74
After identifying your most recent year of ser-
life insurance.
22 . . . .
1.73
56 . . . .
14.91
vice, the next step is to identify the includible
If you have an annuity contract, a portion of
23 . . . .
1.79
57 . . . .
16.18
compensation associated with that full year of
the cost of that contract may be for incidental life
24 . . . .
1.86
58 . . . .
17.56
service.
insurance. If so, the cost of the insurance is
25 . . . .
1.93
59 . . . .
19.08
Includible compensation is not the same as
taxable to you in the year contributed and is
26 . . . .
2.02
60 . . . .
20.73
income included on your tax return. Compensa-
considered part of your basis when distributed.
27 . . . .
2.11
61 . . . .
22.53
tion is a combination of income and benefits
Your employer will include the cost of your insur-
28 . . . .
2.20
62 . . . .
24.50
29 . . . .
2.31
63 . . . .
26.63
received in exchange for services provided to
ance as taxable wages in box 1 of Form W-2.
30 . . . .
2.43
64 . . . .
28.98
your employer.
Not all annuity contracts include life insur-
31 . . . .
2.57
65 . . . .
31.51
Generally, includible compensation is the
ance. Contact your plan administrator to deter-
32 . . . .
2.70
66 . . . .
34.28
amount of income and benefits:
mine if your account includes incidental life
33 . . . .
2.86
67 . . . .
37.31
insurance. If it does, you will need to figure the
•
Received from the employer who main-
34 . . . .
3.02
68 . . . .
40.59
cost of life insurance each year the policy is in
tains your 403(b) account, and
35 . . . .
3.21
69 . . . .
44.17
effect.
•
36 . . . .
3.41
70 . . . .
48.06
That you must include in income.
Figuring the cost of incidental life
37 . . . .
3.63
71 . . . .
52.29
You determine the amount you must include in
insurance. If you have determined
38 . . . .
3.87
72 . . . .
56.89
income without taking into account the foreign
that part of the cost of your annuity
39 . . . .
4.14
73 . . . .
61.89
earned income exclusion.
contract is for an incidental life insurance pre-
40 . . . .
4.42
74 . . . .
67.33
Page 8
Chapter 3 Maximum Exclusion Allowance (MEA)
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