Contributions

<div class="Section1"><br /> <br /> The safe harbor rules for automatic contribution plans with respect to 401(k) plans also apply with respect to matching contributions under a 403(b) annuity through the application of IRC Section 403(b)(12) ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3762">3762</a>). This provision is effective for years beginning after<br /> December&nbsp;31, 2007.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&sect;&nbsp;401(k)(13), 401(m)(12), 414(w).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Under the final regulations, a plan-to-plan transfer from a 403(b) plan to another 403(b) plan is permitted if each of the following conditions is met:<br /> <p style="padding-left: 40px;">(1)  the participant is an employee or former employee of the employer for the receiving plan or, in the case of a transfer for a beneficiary of a deceased participant, the participant was an employee or former employee of the employer for the receiving plan;</p><br /> <p style="padding-left: 40px;">(2)  the transferring plan provides for transfers;</p><br /> <p style="padding-left: 40px;">(3)  the receiving plan provides for the receipt of transfers;</p><br /> <p style="padding-left: 40px;">(4)  the participant or beneficiary whose assets are being transferred has an accumulated benefit immediately after the transfer that is at least equal to the accumulated benefit immediately before the transfer;</p><br /> <p style="padding-left: 40px;">(5)  the receiving plan imposes restrictions on distributions to the participant or beneficiary whose assets are being transferred that are no less stringent than those imposed on the transferring plan; and</p><br /> <p style="padding-left: 40px;">(6)  if a plan-to-plan transfer does not constitute a complete transfer of the participant’s or beneficiary’s interest in the 403(b) plan, the receiving plan treats the amount transferred as a continuation of a pro rata portion of the participant’s or beneficiary’s interest in the Section 403(b) plan (e.g., a pro rata portion of the participant’s or beneficiary’s interest in any after-tax employee contributions).<a href="#_ftn1" name="_ftnref1">¹</a></p><br /> <br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> No transfers are permitted between contracts that are not part of a plan under Revenue Procedure 2007-71, because the 2007 regulations revoked Revenue Ruling 90-24 which had previously permitted such transfers.<br /> <br /> <hr /><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  Treas. Reg. § 1.403(b)-10(b)(3).<br /> <br /> </div>

<div class="Section1"><br /> <br /> Section&nbsp;403(b) plans are allowed to offer a <em>qualified Roth contribution program</em>, which is basically a Roth account for elective deferrals.<a href="#_ftn1" name="_ftnref1">¹</a> Essentially, participants of 403(b) plans establishing these programs are able to designate all or a portion of their elective deferrals as Roth contributions. Roth contributions will be included in the participant&rsquo;s gross income in the year the contribution is made and then be held in a separate account with separate recordkeeping.<a href="#_ftn2" name="_ftnref2">²</a> For details on Roth contribution programs under cash or deferred arrangements, <em><em>see</em> </em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3780">3780</a>.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&sect;&nbsp;402A(b), 402A(e).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect;&nbsp;402A(b).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; <em><em>See also</em></em> Treas. Reg. &sect;&sect;&nbsp;1.403(b)-3(c), 1.403(b)-7(e), 1.403(b)-10(d)(2).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Contributions to a 403(b) plan generally do not need to be aggregated with other 401(a) defined contribution plans of the employer in computing the Section 415 limitation. If a person participates in a 401(a) defined contribution plan and also participates in a 403(b) plan of another employer, contributions to both plans must be aggregated for 415 purposes if that participant is in control of either employer.<br /> <br /> In applying the IRC Section 415 limit to a combination of a 403(b) annuity and a defined contribution plan of an individual controlled by the employer, each plan separately must meet the limit applicable to it taking into consideration only the compensation from the employer providing the plan. In determining the combined limit, compensation from the controlled employer may be aggregated with that from the employer providing the annuity.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 415(f).<br /> <br /> </div>

<div class="Section1"><br /> <br /> For taxable years beginning after 2001, the rules requiring that the contribution limits under IRC Section&nbsp;457 be coordinated with elective deferral limits are permanently repealed.<a href="#_ftn1" name="_ftnref1">¹</a> Consequently, an individual who participates in a 403(b) and 457 plan conceivably could defer a total of $47,000 in 2025 ($23,500 in each plan) (up from $46,000 in 2024 ($23,000 in each plan), $45,000 in 2023 ($22,500 in each plan), $41,000 in 2022 ($20,500 in each plan), and $39,000 in 2020-2021 ($19,500 in each plan) ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3584">3584</a>).<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;457(c).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IR-2013-86 (Oct. 31, 2013), IR-2014-99 (Oct. 23, 2014). See, e.g., Let. Rul. 200934012 (college president allowed to defer $15,500 each to a 403(b) plan and a 457(b) plan for calendar year 2008), Notice 2019-59, Notice 2020-79, Notice 2021-61, Notice 2022-55, Notice 2023-75, Notice 2024-80.<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Yes, but time limits apply.<br /> <br /> Under the IRC, the term includable compensation ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4043">4043</a>) means compensation earned by the employee for the most recent period, ending not later than the close of the taxable year for which the limitation is being determined, that constitutes a full year of service and that precedes the taxable year by no more than five years.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> A former employee is deemed to have monthly includable compensation ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4043">4043</a>) for the period through the end of the taxable year in which the employee ceases to be an employee and through the end of each of the next five taxable years. The amount of the monthly includable compensation is equal to one-twelfth of the former employee&rsquo;s includable compensation during the former employee&rsquo;s most recent year of service. Accordingly, non-elective employer contributions for a former employee must not exceed the IRC Section&nbsp;415(c) limit up to the lesser of the dollar amount in IRC Section&nbsp;415(c) or the former employee&rsquo;s annual includable compensation based on the former employee&rsquo;s average monthly compensation during his or her most recent year of service.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;403(b)(3).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; Treas. Reg. &sect;&nbsp;1.403(b)-4(d)(1).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> To the extent a contribution in a limitation year exceeds the overall IRC Section&nbsp;415 limit, it must be included in gross income for the tax year with which or in which the limitation year ends<a href="#_ftn1" name="_ftnref1">¹</a> to the extent the excess is not returned in a timely manner.<br /> <br /> 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 &ldquo;403(c)&rdquo; contract and a qualifying 403(b) annuity.<a href="#_ftn2" name="_ftnref2">²</a> 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.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> An excess contribution made to a custodial account also may be subject to an excise tax ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4053">4053</a>).<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>. Treas. Reg. &sect;&sect; 1.415-6(e)(1)(ii), 1.403(b)-4(f)(1).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. Treas. Reg. &sect; 1.403(b)-3(b)(2), referring to IRC &sect; 415(a)(2) (flush language).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>. Treas. Reg. &sect; 1.403(b)-3(b)(2).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> The limit on contributions and benefits applicable to qualified pension plans applies to tax sheltered annuities ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4042">4042</a>).<a href="#_ftn1" name="_ftnref1">¹</a> For the purpose of this limit, tax sheltered annuities generally will be treated as defined contribution plans.<a href="#_ftn2" name="_ftnref2">²</a> Thus, they are subject to a limit of the lesser of 100 percent of the participant&rsquo;s compensation (defined in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4044">4044</a>) or the applicable dollar limit. The applicable dollar limit for 2025 is $70,000.<a href="#_ftn3" name="_ftnref3">³</a> This limit is indexed for inflation in increments of $1,000 ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3868">3868</a>).<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> The limit is on the amount of annual additions that may be made in any limitation year to a participant&rsquo;s account.<br /> <br /> Annual additions are employer contributions, including salary reduction amounts and employee after-tax contributions. Excess elective deferrals ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4047">4047</a>) that are correctly distributed under the regulations are not included as annual additions.<a href="#_ftn5" name="_ftnref5">⁵</a> Excess matching employer contributions ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4038">4038</a>) are included, however, even if the excess is corrected by a distribution from the plan.<a href="#_ftn6" name="_ftnref6">⁶</a><br /> <br /> Earnings attributable to distributed elective deferrals that are not themselves distributed<br /> will be treated as an employer contribution for the limitation year in which the distributed<br /> elective deferral was made.<a href="#_ftn7" name="_ftnref7">⁷</a> A contribution made during a tax year is considered to be made on the last day of the limitation year that ends in or with the tax year.<a href="#_ftn8" name="_ftnref8">⁸</a><br /> <br /> A limitation year is the calendar year or any other twelve-month period that may be elected by the plan in the plan document. Contributions in excess of the overall limit are discussed in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4046">4046</a>.<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;415(a)(2).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; Treas. Reg. &sect;&nbsp;1.415-6(e)(1)(i).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; IRC &sect; 415(c), Notice 2024-80.<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp; IRC &sect;&nbsp;415(d)(4)(B).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp; Treas. Reg. &sect;&sect;&nbsp;1.402(g)-1(e)(1)(ii); 1.415-6(b)(1)(i).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp; Treas. Reg. &sect;&sect;&nbsp;1.401(m)-1(e)(3)(iv); 1.415-6(b)(1)(i).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp; Treas. Reg. &sect;&nbsp;1.415-6(b)(6)(iv).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.&nbsp; Treas. Reg. &sect;&nbsp;1.415-6(e)(1)(iii).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> The amount of elective deferrals that an individual can exclude from income for a tax year is limited. Elective deferrals are:<br /> <p style="padding-left: 40px;">(1)&nbsp; amounts contributed to tax sheltered annuity plans under salary reduction agreements;</p><br /> <p style="padding-left: 40px;">(2)&nbsp; amounts contributed under cash or deferred arrangements to 401(k) plans ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3751">3751</a>) and salary reduction SEPs (&ldquo;SAR-SEPs&rdquo;) ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3705">3705</a>); and</p><br /> <p style="padding-left: 40px;">(3)&nbsp; amounts contributed under salary reductions to SIMPLE IRAs ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3706">3706</a>).<a href="#_ftn1" name="_ftnref1">¹</a></p><br /> Elective deferrals do not include elective contributions made pursuant to a one-time irrevocable election that is made at initial eligibility to participate in the salary reduction agreement or pursuant to certain other one time irrevocable elections specified in regulations, or pre-tax contributions made as a condition of employment.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> For 2020-2021, the aggregate limit on elective deferrals was $19,500, and the limit for 2022 is $20,500. The limit increased to $22,500 in 2023, $23,000 in 2024 and $23,500 in 2025.<a href="#_ftn3" name="_ftnref3">³</a> The elective deferral limit is indexed for inflation in increments of $500.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;402(g).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect;&nbsp;402(g)(3).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; IRC &sect; 402(g)(1); Notice 2017-64, Notice 2018-83, Notice 2019-59, Notice 2020-79, Notice 2021-61, Notice 2022-55, Notice 2023-75, Notice 2024-80.<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp; IRC &sect;&nbsp;402(g)(4).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Any elective deferral in excess of the applicable limit is included in the individual&rsquo;s gross income for the year of deferral. If any such amount is included, the individual may, no later than April&nbsp;15 of the following year, allocate the excess deferrals among the plans under which the deferrals were made and, if plan language permits it, the plans may distribute to the individual the amounts so allocated together with income allocable to the amounts no later than April&nbsp;15 of that year.<a href="#_ftn1" name="_ftnref1">¹</a> A timely distribution may be made regardless of otherwise applicable prohibitions on distributions ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4035">4035</a>).<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> Because an excess deferral is not excluded from gross income, the excess amount distributed under these rules by April&nbsp;15 is not included in income as a distribution. Any income on the excess deferral is included in income in the taxable year in which distributed.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> A distribution of less than the entire amount of excess and income is treated as a pro rata distribution of deferral amount and income.<a href="#_ftn4" name="_ftnref4">⁴</a> A distribution by April&nbsp;15 of excess deferrals and income is not subject to tax as a premature distribution under IRC Section&nbsp;72(t).<a href="#_ftn5" name="_ftnref5">⁵</a> A distribution of an excess deferral is not a distribution for purposes of meeting the minimum distribution requirements.<a href="#_ftn6" name="_ftnref6">⁶</a><br /> <br /> If the excess deferral is not distributed by April&nbsp;15, it is subject to the regular prohibitions on withdrawals and is not included in the investment in the contract, or basis, even though it has been included in income. Thus, excess deferrals are includable in gross income when later distributed.<a href="#_ftn7" name="_ftnref7">⁷</a> A withdrawal that occurs before the excess deferral was made does not count as a distribution of an excess deferral.<a href="#_ftn8" name="_ftnref8">⁸</a><br /> <br /> The amount of salary reduction excludable in a year may actually be less than the amount permitted under the limit if the overall limit is less ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4042">4042</a>). Contributions by salary reduction are not deductible employee contributions; they are employer contributions that are excludable within limits ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4035">4035</a>, Q <a href="javascript:void(0)" class="accordion-cross-reference" id="4042">4042</a>).<br /> <br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect;&nbsp;402(g)(2); Treas. Reg. &sect;&nbsp;1.402(g)-1(e)(2). <em><em>See also</em></em> Treas. Reg. &sect;&sect;&nbsp;1.403(b)-4(f)(1), 1.403(b)-4(f)(4).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect;&nbsp;402(g)(2).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; Treas. Reg. &sect;&nbsp;1.402(g)-1(e)(8).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp; Treas. Reg. &sect;&nbsp;1.402(g)-1(e)(10).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp; Treas. Reg. &sect;&nbsp;1.402(g)-1(e)(8).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp; IRC &sect;&nbsp;402(g)(2)(C); Treas. Reg. &sect;&nbsp;1.402(g)-1(e)(9).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp; IRC &sect;&nbsp;402(g)(6).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.&nbsp; Treas. Reg. &sect;&nbsp;1.402(g)-1(e)(3).<br /> <br /> </div></div><br />