Tax Facts

4046 / What is the effect of making contributions to a tax sheltered annuity in excess of the overall limit?

To the extent a contribution in a limitation year exceeds the overall IRC Section 415 limit, it must be included in gross income for the tax year with which or in which the limitation year ends1 to the extent the excess is not returned in a timely manner.

As a result of excess IRC Section 415 amounts, the annuity contract or custodial account is bifurcated into a non-qualified annuity, comprised of the excess and earnings thereon, and considered a “403(c)” contract and a qualifying 403(b) annuity.2 The entire contract fails to be a 403(b) contract if an excess annual addition is made and a separate account is not maintained with respect to the excess.3

An excess contribution made to a custodial account also may be subject to an excise tax ( Q 4053).

1. Treas. Reg. §§ 1.415-6(e)(1)(ii), 1.403(b)-4(f)(1).

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