Table of Contents
The second, and final component of MAC is the limit on elective deferrals. This is a limit on the amount of contributions that can be made to your account through a salary reduction agreement.
A salary reduction agreement is an agreement between you and your employer allowing for a portion of your compensation to be directly invested in a 403(b) account on your behalf. You can enter into more than one salary reduction agreement during a year.
More than one 403(b) account. If, for any year, elective deferrals are contributed to more than one 403(b) account for you (whether or not with the same employer), you must combine all the elective deferrals to determine whether the total is more than the limit for that year.
403(b) plan and another retirement plan. If, during the year, contributions in the form of elective deferrals are made to other retirement plans on your behalf, you must combine all of the elective deferrals to determine if they are more than your limit on elective deferrals. The limit on elective deferrals applies to amounts contributed to:
-
401(k) plans, to the extent excluded from income,
-
Section 501(c)(18) plans, to the extent excluded from income,
-
SIMPLE plans,
-
Simplified employee pension (SEP) plans, and
-
All 403(b) plans.
Under the general limit on elective deferrals, the most that can be contributed to your 403(b) account through a salary reduction agreement for 2007 and 2008 is $15,500. This limit applies without regard to community property laws.
If you have at least 15 years of service with a public school system, hospital, home health service agency, health and welfare service agency, church, or convention or association of churches (or associated organization), the limit on elective deferrals to your 403(b) account is increased by the least of:
-
$3,000,
-
$15,000, reduced by the sum of:
-
The increases to the general limit you were allowed in earlier years because of this rule, plus
-
The aggregate amount of designated Roth contributions for prior tax years, or
-
-
$5,000 times the number of your years of service for the organization, minus the total elective deferrals made by your employer on your behalf for earlier years.
If you qualify for the 15-year rule, your elective deferrals under this limit can be as high as $18,500 for 2007 and 2008.
To determine whether you have 15 years of service with your employer, see Years of Service, next.
To determine if you are eligible for the increased limit on elective deferrals, you will first need to figure your years of service. How you figure your years of service depends on whether you were a full-time or a part-time employee, whether you worked for the full year or only part of the year, and whether you have worked for your employer for an entire year.
You must figure years of service for each year during which you worked for the employer who is maintaining your 403(b) account.
If more than one employer maintains a 403(b) account for you in the same year, you must figure years of service separately for each employer.
Your years of service are the total number of years you have worked for the employer maintaining your 403(b) account as of the end of the year.
Take the following rules into account when figuring your years of service.
Example.
The annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. Marsha began working with ABC schools in September 2003. She has always worked full-time for each annual work period. At the end of 2007, Marsha had 4.5 years of service with ABC Public Schools, as shown in Table 4-1.
Table 4-1. Marsha's Years of Service
Note. This table shows how Marsha figures her years of service, as explained in the previous example.
Year | Period Worked | Portion of Work Period | Years of Service |
---|---|---|---|
2003 | Sept.-Dec. | .5 year | .5 year |
2004 | Feb.-May | .5 year | 1 year |
Sept.-Dec. | .5 year | ||
2005 | Feb.-May | .5 year | 1 year |
Sept.-Dec. | .5 year | ||
2006 | Feb.-May | .5 year | 1 year |
Sept.-Dec. | .5 year | ||
2007 | Feb.-May | .5 year | 1 year |
Sept.-Dec. | .5 year | ||
Total years of service | 4.5 years |
Example.
All full-time teachers at ABC Public Schools are required to work both the September through December semester and the February through May semester. Therefore, the annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. Teachers at ABC Public Schools who work both semesters in the same calendar year are considered working a full year of service in that calendar year.
Count each full year during which you were employed full time as 1 year of service. In determining whether you were employed full-time, compare the amount of work you were required to perform with the amount of work normally required of others who held the same position with the same employer and who generally received most of their pay from the position.
Example.
An assistant professor employed in the English department of a university will be considered a full-time employee if the amount of work that he or she is required to perform is the same as the amount of work normally required of assistant professors of English at that university who get most of their pay from that position.
Example.
If a doctor works for a hospital 12 months of a year except for a 1- month vacation, the doctor will be considered as employed for a full year if the other doctors at that hospital also work 11 months of the year with a 1-month vacation. Similarly, if the usual annual work period at a university consists of the fall and spring semesters, an instructor at that university who teaches these semesters will be considered as working a full year.
If, during any year, you were employed full-time for only part of your employer's annual work period, part-time for the entire annual work period, or part-time for only part of the work period, your year of service for that year is a fraction of your employer's annual work period.
-
The numerator (top number) is the number of weeks, months, or semesters you were a full-time employee.
-
The denominator (bottom number) is the number of weeks, months, or semesters considered the normal annual work period for the position.
Example.
Jason was employed as a full-time instructor by a local college for the 4 months of the 2007 spring semester (February 2007 through May 2007). The annual work period for the college is 8 months (February through May and July through October). Given these facts, Jason was employed full time for part of the annual work period and provided ½ of a year of service. Jason's years of service computation for 2007 is as follows.
Number of months Jason worked | = | 4 | = | 1 |
Number of months in annual work period | 8 | 2 |
-
The numerator (top number) is the number of hours or days you worked.
-
The denominator (bottom number) is the number of hours or days required of someone holding the same position who works full-time.
Example.
Vance teaches one course at a local medical school. He teaches 3 hours per week for two semesters. Other faculty members at the same school teach 9 hours per week for two semesters. The annual work period of the medical school is two semesters. An instructor teaching 9 hours a week for two semesters is considered a full-time employee. Given these facts, Vance has worked part-time for a full annual work period. Vance has completed 1/ of a year of service, figured as shown below.
Number of hours per week Vance worked | = | 3 | = | 1 |
Number of hours per week considered full-time | 9 | 3 |
-
The numerator (top number) is the number of weeks, months, or semesters you were a full-time employee.
-
The denominator (bottom number) is the number of weeks, months, or semesters considered the normal annual work period for the position.
-
The numerator (top number) is the number of hours or days you worked.
-
The denominator (bottom number) is the number of hours or days required of someone holding the same position who works full-time.
Example.
Maria, an attorney, teaches a course for one semester at a law school. She teaches 3 hours per week. The annual work period for teachers at the school is two semesters. All full-time instructors at the school are required to teach 12 hours per week. Based on these facts, Maria is employed part-time for part of the annual work period. Her year of service for this year is determined by multiplying two fractions. Her computation is as follows.
Maria's first fraction
Number of semesters Maria worked | = | 1 |
Number of semesters in annual work period | 2 |
Maria's second fraction
Number of hours Maria worked per week | = | 3 | = | 1 |
Number of hours per week considered full-time | 12 | 4 |
Maria would multiply these fractions to obtain the fractional year of service:
1 | x | 1 | = | 1 | ||||
2 | 4 | 8 |
You can use Part II of Worksheet 1 in chapter 9 to figure the limit on elective deferrals.
Floyd has figured his limit on annual additions. The only other component needed before he can determine his MAC for 2008 is his limit on elective deferrals.
Floyd's employer will not make any nonelective contributions to his 403(b) account and Floyd will not make any after-tax contributions. Additionally, Floyd's employer does not offer a Roth contribution program.
Floyd has determined that his limit on annual additions for 2008 is $46,000 and his limit on elective deferrals is $15,500. Because elective deferrals are the only contributions made to Floyd's account, the maximum amount that can be contributed to a 403(b) account on Floyd's behalf in 2008 is $15,500, the lesser of both limits.
Table 4-2. Worksheet 1. Maximum Amount Contributable (MAC)
Note.Use this worksheet to figure your MAC.
Part I. Limit on Annual Additions | |||
1. | Enter your includible compensation for your most recent year of service | 1. | $70,475 |
2. |
Maximum
|
2. | 46,000 |
3. | Enter the lesser of line 1 or line 2. This is your limit on annual additions | 3. | 46,000 |
Caution: If you had only nonelective contributions, skip Part II and enter the amount from line 3 on line 18. | |||
Part II. Limit on Elective Deferrals | |||
4. |
Maximum contribution
|
4. | 15,500 |
Note. If you have at least 15 years of service with a qualifying organization, complete lines 5 through 17. If not, enter zero (-0-) on line 16 and go to line 17. | |||
5. | Amount per year of service | 5. | 5,000 |
6. | Enter your years of service | 6. | |
7. | Multiply line 5 by line 6 | 7. | |
8. | Enter the total of all elective deferrals for prior years made for you by qualifying organizations | 8. | |
9. | Subtract line 8 from line 7. If zero or less, enter zero (-0-) | 9. | |
10. | Maximum increase in limit for long service | 10. | 15,000 |
11. | Enter all prior year increases in the limit for long service | 11. | |
12. | Enter the total amount of all designated Roth contributions for prior years | 12. | |
13. | Add lines 11 and 12 | 13. | |
14. | Subtract line 13 from line 10 | 14. | |
15. | Maximum additional contributions | 15. | 3,000 |
16. | Enter the least of lines 9, 14, or 15. This is your increase in the limit for long service | 16. | -0- |
17. | Add lines 4 and 16. This is your limit on elective deferrals | 17. | 15,500 |
Part III. Maximum Amount Contributable | |||
18. |
|
18. | $15,500 |
More Online Publications |