4093 / What excise taxes and additional taxes apply to tax sheltered annuity contributions and distributions?

Excess Contributions to Custodial Accounts

Contributions to a custodial account for the purchase of regulated investment company stock and to a retirement income account to the extent funded through custodial accounts are subject to a tax of 6 percent, not to exceed 6 percent of the value of the account, on (1) the amount by which the contributions other than a permissible rollover contribution ( Q 4007) exceed the lesser of the amount excludable from gross income under IRC Section 403(b) or the overall limitation under IRC Section 415, or whichever is applicable if only one is applicable, plus (2) any such excess carried over from the preceding tax year ( Q 4053).¹

Early or Premature Distributions

If a taxpayer receives a premature distribution from a tax sheltered annuity, he or she will be subject to an excise tax equal to 10 percent of the portion of the distribution includable in income ( Q 4074).²

Minimum Required Distribution Failure

If the amount distributed during a tax year is less than the minimum required distribution for the year, there generally is a tax equal to 25 (50 percent prior to 2023) of the amount that the distribution made in the year falls short of the required amount. The tax is imposed on the payee, not the plan ( Q 4075).³

Excess Aggregate Contributions

If an employee makes after-tax contributions or the employer makes contributions that match contributions under an employee’s salary reduction agreement or match employee after-tax contributions and the aggregate amount of the contributions exceeds the nondiscriminatory amount ( Q 3804), a tax of 10 percent of the amount in excess of the permitted, nondiscriminatory maximum is imposed on the employer to the extent the excess amount and income attributable to it is not distributed within 2½ months after the end of the plan year ( Q 3808).⁴