- I am a TSA plan sponsor and all I do is deduct salary deferrals from employees' salaries and forward them to the annuity provider of their choice. Since I am not "administering" the plan, I don't have any further responsibility, do I?
- Our school system has a TSA for full-time teachers and Administrative Personnel. It is just too much administrative paperwork to extend coverage to part-time employees and substitute teachers. They wouldn't participate anyway, since they don't have a full-time salary. Do we have to cover part-time and substitute teachers in our salary deferral TSA?
- Our school system has signed "hold harmless" agreements with our vendors. They have agreed to take the responsibility to assure the participant and plan sponsor contributions do not exceed any of the limits. Since we have this agreement, our school system doesn't have to worry about complying with the limits does it?
- I am a plan sponsor and I would like to be empowered to use Self-Correction Program (SCP) to correct Operational Failures that may be discovered in the future. What types of "practices and procedures" do I need to have in place in order to take advantage of the SCP correction method?
- What are the most common compliance failures in TSAs that have been examined by IRS?
- I participate in a TSA and I have taken a loan from my account. I would like to repay my loan by including an extra amount in my salary deferral contribution to cover the loan payment. Can my loan payment be included as part of my salary deferral contribution?
- I know that the rollover rules for TSA rollovers were liberalized a few years ago. I am 35 years old and still working. I know of a really good investment opportunity and would like to roll a portion of my TSA into an Individual Retirement Account (IRA) so I can take advantage of this opportunity. Can I roll a portion of my TSA into an IRA so I can direct the investment?
- I work for the ABC public school system and I have 12 years of service with this employer. Prior to working for ABC, I worked for the adjoining county, XYZ public school system for 3 years. Since I now have 15 total years of service, I would like to take advantage of the increased salary deferral limit for long term employee. I know that in order to take advantage of the increased salary deferral contribution of $13,500, I must have 15 years of service. Since the two public school systems I have worked for are in the same state, can I add my years of service for ABC and XYZ public school systems to meet the years of service requirement?
- I work for the ABC Public School system and have 12 years of service with the employer. I turn 50 on December 31 in 2002. Am I eligible to use the new catch up provisions and contribute an additional $1,000.00 to my tax-sheltered annuity for 2002?
- Does my employer's TSA plan have to provide for the catch-up?
- Are the new catch-up provisions of EGTRRA subject to the non-discrimination rules?
- I would like to take advantage of the catch-up provisions under section 415(c) of the Internal Revenue Code, for 2002. May I do so?
- I am working for a religious organization. May I use funds from my TSA to purchase service credits in my employers' defined benefit plan?
- For 2002, am I limited to 25 percent of my compensation for amounts that I may contribute to a 403(b) arrangement?
- When are the new EGTRRA contribution limits for TSAs effective?
- I will be retiring in 2002. I have been participating in my employer's TSA for the last two years. I would like to increase my annuity account. Is my employer permitted to make contributions to my TSA after I retire?
- May I make contributions to my TSA after I retire?
- I retired in 2001. I would like my employer to make contributions to my TSA through 2006. However, my employer says that funds are tight and that he cannot make any contributions. Doesn't he have to make contributions if I request it?
- I am an employee minister in a local church. Each year, my church permits $25,000 as a yearly tax-free housing allowance. I would like to use my yearly housing allowance as compensation to determine my annual contribution limits (to a TSA) under section 415(c) of the Internal Revenue Code. May I do so?
- I know that there is an annual 100 percent of compensation limit (up to $40,000) on employer and employee contributions to a TSA. All contributions are my salary deferral contributions. I make $40,000 and I would like to make the maximum salary deferral contribution of $11,000. Can I contribute the full $11,000 since my employer does not make an employer or matching contribution?
- What are the new rollover rules beginning on or after January 1, 2002?
- My school system would like to learn more about compliance with the requirements of section 403(b) for Tax Sheltered Annuities. Does the Internal Revenue Service have any programs to help school systems comply with the law?
I am a TSA plan sponsor and all I do is deduct salary deferrals from employees' salaries and forward them to the annuity provider of their choice. Since I am not "administering" the plan, I don't have any further responsibility, do I?
The plan sponsor is responsible for withholding the proper amount for employees' salaries for federal tax. If an employee exceeds the amount of contribution that can be properly deferred into the plan, the excess is income taxable to the employee. The plan sponsor could be subject to penalties for federal income tax withholding and FICA (if applicable) tax that should have been withheld on the excess contribution.
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Our school system has a TSA for full-time teachers and Administrative Personnel. It is just too much administrative paperwork to extend coverage to part-time employees and substitute teachers. They wouldn't participate anyway, since they don't have a full-time salary. Do we have to cover part-time and substitute teachers in our salary deferral TSA?
In order to meet nondiscrimination requirements of the law, once a plan sponsor permits any employee to elect a salary deferral into the TSA, the opportunity must be extended to all employees of the organization who may elect to have the plan sponsor make contributions of more than $200 pursuant to a salary reduction agreement. Certain employees may be excluded. Employees who may be excluded include employees who are participants in an eligible deferred compensation plan (457 or 401(k)) or participants in another TSA, non-resident aliens, certain students and employees who normally work less than 20 hours per week. Special care should be taken to comply with this requirement. Non-compliance could result in the entire TSA losing its tax-favored treatment.
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Our school system has signed "hold harmless" agreements with our vendors. They have agreed to take the responsibility to assure the participant and plan sponsor contributions do not exceed any of the limits. Since we have this agreement, our school system doesn't have to worry about complying with the limits does it?
The "hold harmless" agreement is between the school system and its vendors. If the TSA has failures that result in additional federal withholding or FICA tax, the school system will be responsible for the proper amount of tax due.
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I am a plan sponsor and I would like to be empowered to use Self-Correction Program (SCP) to correct Operational Failures that may be discovered in the future. What types of "practices and procedures" do I need to have in place in order to take advantage of the SCP correction method?
In order to use SCP, a TSA plan sponsor must have established practices and procedures in place and routinely followed to facilitate compliance with the Internal Revenue Code, but through an oversight or a mistake in applying them or an inadequacy in the procedures, an operational failure occurred. The practices and procedures may be at the plan sponsor, vendor or third party administrator level. A determination about whether the plan sponsor has practices and procedures in place will be made based on the facts and circumstances in each case. Some examples of practices and procedures are (1) payroll procedures that identify contributions in excess of the salary deferral limit; (2) a procedure to review contribution limitations for participants; (3) a system to review part-time employees or substitute teachers to assure all eligible employees are given the opportunity to participate; and (4) a procedure to identify participants who are eligible for extra amounts in their deferral contributions. As noted above, the determination of the presence of practices and procedures is based upon the facts and circumstances in each case. The individual examples above may not necessarily result in a finding that practices and procedures exist. It should be noted that these practices and procedures must be reasonably designed to promote and facilitate overall compliance with the requirements for TSAs.
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What are the most common compliance failures in TSAs that have been examined by IRS?
The most common failures in TSAs are:
- Universal Availability - failure to offer a salary reduction option to eligible part-time employees and substitute teachers; and
- Contributions in excess of the various contribution limitations.
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I participate in a TSA and I have taken a loan from my account. I would like to repay my loan by including an extra amount in my salary deferral contribution to cover the loan payment. Can my loan payment be included as part of my salary deferral contribution?
No. Your salary deferral contribution to the TSA is subject to distribution restrictions that limit distributions prior to death, disability, separation from service, financial hardship or attainment of age 59 1/2. Using a part of the salary deferral contribution as a loan payment would result in an improper distribution and could have taxable consequences for the participant.
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I know that the rollover rules for TSA rollovers were liberalized a few years ago. I am 35 years old and still working. I know of a really good investment opportunity and would like to roll a portion of my TSA into an Individual Retirement Account (IRA) so I can take advantage of this opportunity. Can I roll a portion of my TSA into an IRA so I can direct the investment?
A rollover from a TSA to an IRA may be permitted if there has been a distributable event. A distributable event would include death, disability, separation from service, hardship or attainment of age 59 ½ . Since you have not separated from service and are not age 59 ½ it does not appear that you have a distributable event. In such circumstances, a rollover from the TSA to an IRA would be an improper distribution and could have taxable consequences. A hardship distribution is not qualified for rollover treatment under any circumstances.
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I work for the ABC public school system and I have 12 years of service with this employer. Prior to working for ABC, I worked for the adjoining county, XYZ public school system for 3 years. Since I now have 15 total years of service, I would like to take advantage of the increased salary deferral limit for long term employee. I know that in order to take advantage of the increased salary deferral contribution of $13,500, I must have 15 years of service. Since the two public school systems I have worked for are in the same state, can I add my years of service for ABC and XYZ public school systems to meet the years of service requirement?
In order to take advantage of the salary deferral increased limitation; a participant must have 15 years of service with the employer for whom the limitation is being determined. For this purpose, separate school districts or systems are not treated as the same employer. Therefore, adding years of service for your two employers is not permitted. The annual dollar limit for salary deferrals, generally $11,000 for the year 2002, would apply.
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I work for the ABC Public School system and have 12 years of service with the employer. I turn 50 on December 31 in 2002. Am I eligible to use the new catch up provisions and contribute an additional $1,000.00 to my tax-sheltered annuity for 2002?
Yes. If you attain age 50 at any time during a calendar year, you may take advantage of new catch-up provisions for that year.
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Does my employer's TSA plan have to provide for the catch-up?
No. It is not mandatory that the employer provide for a catch-up. However, if an employer maintains more than one plan, and one plan allows for a catch-up, then all plans must allow for a catch-up.
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Are the new catch-up provisions of EGTRRA subject to the non-discrimination rules?
No. The amount of the catch-up will not be subject to the non-discrimination rules as long as the catch-up is made available to all employees.
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I would like to take advantage of the catch-up provisions under section 415(c) of the Internal Revenue Code, for 2002. May I do so?
No. The catch-up provisions of section 415(c) (the "year of separation from service", the "any year" election, or the election to make contributions up to the 415 limits without regard to the maximum exclusion allowance) have been repealed by EGTRRA. Thus, these catch-up provisions may not be taken advantage of for years beginning after December 31, 2001.
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I am working for a religious organization. May I use funds from my TSA to purchase service credits in my employers' defined benefit plan?
No. Only employees of state and local governments may use funds from their 403(b) plan to purchase service credits under their defined benefit plans.
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For 2002, am I limited to 25 percent of my compensation for amounts that I may contribute to a 403(b) arrangement?
No. For 2002, the limit on contributions has been increased to the lesser of $40,000 or 100 percent of includible compensation.
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When are the new EGTRRA contribution limits for TSAs effective?
The new limits for contributions are effective for limitation years beginning on or after January 1, 2002.
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I will be retiring in 2002. I have been participating in my employer's TSA for the last two years. I would like to increase my annuity account. Is my employer permitted to make contributions to my TSA after I retire?
Yes. Post retirement employer contributions to TSAs are permitted for up to five years after your severance from employment. The amount of your employer's contribution will be based on your compensation during your final year of service.
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May I make contributions to my TSA after I retire?
No. Only your employer is permitted to make contributions after you retire.
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I retired in 2001. I would like my employer to make contributions to my TSA through 2006. However, my employer says that funds are tight and that he cannot make any contributions. Doesn't he have to make contributions if I request it?
No. While post retirement contributions are permitted, there is no requirement that such contributions be made by the employer.
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I am an employee minister in a local church. Each year, my church permits $25,000 as a yearly tax-free housing allowance. I would like to use my yearly housing allowance as compensation to determine my annual contribution limits (to a TSA) under section 415(c) of the Internal Revenue Code. May I do so?
No. For purposes of determining the limits on contributions under section 415(c) of the Internal Revenue Code, amounts paid to an employee minister, as a tax-free housing allowance, may not be treated as compensation pursuant to the definitions of compensation under section 1.415-2(d) of the Income Tax Regulations.
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I know that there is an annual 100 percent of compensation limit (up to $40,000) on employer and employee contributions to a TSA. All contributions are my salary deferral contributions. I make $40,000 and I would like to make the maximum salary deferral contribution of $11,000. Can I contribute the full $11,000 since my employer does not make an employer or matching contribution?
Yes. In any given year, your contribution is limited to the lesser of the two limits. The two limits are the annual dollar limit on elective deferral (generally, $11,000 for 2002) and the annual contribution limit on employee and employer contributions (generally, the lesser of 100 percent of includible compensation or $40,000). Applying the annual contribution limit, your maximum contribution could be $11,000 since you are limited by the dollar limit on elective deferrals.
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What are the new rollover rules beginning on or after January 1, 2002?
The rollover rules have been changed, beginning January 1, 2002. Funds distributed from a TSA may be rolled over to a Cash or Deferred Arrangement under section 401(k), a governmental 457(b) arrangement or another TSA. Funds distributed from these plans may also be rolled over into a TSA. However, if the funds distributed from one of these plans consists of amounts that were previously rolled over from another type of plan, then such distributions may be subject to a 10 percent early withdrawal tax under section 72(t) of the Code. Amounts distributed from an IRA may be rolled over into a TSA.
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My school system would like to learn more about compliance with the requirements of section 403(b) for Tax Sheltered Annuities. Does the Internal Revenue Service have any programs to help school systems comply with the law?
The Internal Revenue Service currently has a program called the Section 403(b) Tax Sheltered Annuity Partnership for Compliance. Under the Partnership for Compliance, trained and experienced IRS employees will be made available to provide educational services relating to section 403(b) tax sheltered annuity arrangements including delivering speeches, participating in panel discussions, conducting training sessions and helping prepare newsletter articles. Through these services, the IRS can provide information about the unique aspects of tax law applicable to tax sheltered annuities and the problems that arise with them. For example, information can be provided on the impact to both the plan sponsor and employee if excess contributions have been made, improper compensation had been included for calculating excludible amounts, or early distributions have been made to employees. Organizations interested in section 403(b) tax sheltered annuities may request educational services under the Partnership for Compliance.
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