Publication 571 (01/2017), Tax-Sheltered Annuity Plans (403(b) Plans)

For Employees of Public Schools and Certain Tax-Exempt Organizations

Revised: January 2017


Publication 571 - Introductory Material

Future Developments

For the latest information about developments related to Pub. 571, such as legislation enacted after it was published, go to www.irs.gov/pub571.

What's New for 2016

Retirement savings contributions credit. For 2016, the adjusted gross income limitations have increased from $61,000 to $61,500 for married filing jointly filers, from $45,750 to $46,125 for head of household filers, and from $30,500 to $30,750 for single, married filing separately, or qualifying widow(er) with dependent child filers. See chapter 10, Retirement Savings Contributions Credit (Saver's Credit) , for additional information.

Limit on elective deferrals. For 2016, the limit on elective deferrals remains unchanged at $18,000.

Limit on annual additions. For 2016, the limit on annual additions remains unchanged at $53,000.

Self certification available for missed rollover deadline. Beginning August 24, 2016, if you inadvertently fail to complete the rollover of a distribution from an IRA or employer qualified retirement plan within 60 days, you may be able to obtain a waiver of the 60-day time limit through a self-certification procedure if you meet certain requirements. For more information, see How do you self-certify that you qualify for a waiver? under Tax-Free Rollovers in chapter 8.

What’s New for 2017

Retirement savings contributions credit. For 2017, the adjusted gross income limitations have increased from $61,500 to $62,000 for married filing jointly filers, from $46,125 to $46,500 for head of household filers, and from $30,750 to $31,000 for single, married filing separately, or qualifying widow(er) with dependent child filers. See chapter 10, Retirement Savings Contributions Credit (Saver's Credit) , for additional information.

Limit on elective deferrals. For 2017, the limit on elective deferrals remains unchanged at $18,000.

Limit on annual additions. For 2017, the limit on annual additions has increased from $53,000 to $54,000.

Reminder

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Introduction

This publication can help you better understand the tax rules that apply to your 403(b) (tax-sheltered annuity) plan.

In this publication, you will find information to help you do the following.

  • Determine the maximum amount that can be contributed to your 403(b) account in 2017.

  • Determine the maximum amount that could have been contributed to your 403(b) account in 2016.

  • Identify excess contributions.

  • Understand the basic rules for claiming the retirement savings contributions credit.

  • Understand the basic rules for distributions and rollovers from 403(b) accounts.

This publication doesn’t provide specific information on the following topics.

  • Distributions from 403(b) accounts. This is covered in Pub. 575, Pension and Annuity Income.

  • Rollovers. This is covered in Pub. 590-A, Contributions to Individual Retirement Arrangements (IRAs), and Pub. 590-B, Distributions from Individual Retirement Arrangements (IRAs).

How to use this publication.

This publication is organized into chapters to help you find information easily.

Chapter 1 answers questions frequently asked by 403(b) plan participants.

Chapters 2 through 6 explain the rules and terms you need to know to figure the maximum amount that could have been contributed to your 403(b) account for 2016 and the maximum amount that can be contributed to your 403(b) account in 2017.

Chapter 7 provides general information on the prevention and correction of excess contributions to your 403(b) account.

Chapter 8 provides general information on distributions, transfers, and rollovers.

Chapter 9 provides blank worksheets that you will need to accurately and actively participate in your 403(b) plan. Filled-in samples of most of these worksheets can be found throughout this publication.

Chapter 10 explains the rules for claiming the retirement savings contributions credit (saver's credit).



Comments and suggestions.

We welcome your comments about this publication and your suggestions for future editions.

You can send us comments from irs.gov/formspubs. Click on "More Information" and then on "Give us feedback."

Or you can write to:

Internal Revenue Service
Tax Forms and Publications
1111 Constitution Ave. NW, IR-6526
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.



Ordering forms and publications.

Visit irs.gov/formspubs to download forms and publications. Otherwise, you can go to irs.gov/orderforms to order current and prior-year forms and instructions. Your order should arrive within 10 business days.



Tax questions.

If you have a tax question not answered by this publication, check IRS.gov and How To Get Tax Help at the end of this publication.



Useful Items - You may want to see:

Publication

  • 517 Social Security and Other Information for Members of the Clergy and Religious Workers

  • 575 Pension and Annuity Income

  • 590-A Contributions to Individual Retirement Arrangements (IRAs)

  • 590-B Distributions from Individual Retirement Arrangements (IRAs)

Form (and Instructions)

  • W-2 Wage and Tax Statement

  • 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

  • 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts

  • 5330 Return of Excise Taxes Related to Employee Benefit Plans

  • 8880 Credit for Qualified Retirement Savings Contributions

1. 403(b) Plan Basics

This chapter introduces you to 403(b) plans and accounts. Specifically, the chapter answers the following questions.

  • What is a 403(b) plan?

  • What are the benefits of contributing to a 403(b) plan?

  • Who can participate in a 403(b) plan?

  • Who can set up a 403(b) account?

  • How can contributions be made to my 403(b) account?

  • Do I report contributions on my tax return?

  • How much can be contributed to my 403(b) account?

What Is a 403(b) Plan?

A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers.

Individual accounts in a 403(b) plan can be any of the following types.

  • An annuity contract, which is a contract provided through an insurance company.

  • A custodial account, which is an account invested in mutual funds.

  • A retirement income account set up for church employees. Generally, retirement income accounts can invest in either annuities or mutual funds.

We use the term "403(b) account" to refer to any one of these funding arrangements throughout this publication, unless otherwise specified.

What Are the Benefits of Contributing to a 403(b) Plan?


There are three benefits to contributing to a 403(b) plan.

  • The first benefit is that you don’t pay income tax on allowable contributions until you begin making withdrawals from the plan, usually after you retire. Allowable contributions to a 403(b) plan are either excluded or deducted from your income. However, if your contributions are made to a Roth contribution program, this benefit doesn’t apply. Instead, you pay income tax on the contributions to the plan but distributions from the plan (if certain requirements are met) are tax free.

    Note. Generally, employees must pay social security and Medicare tax on their contributions to a 403(b) plan, including those made under a salary reduction agreement. See chapter 4, Limit on Elective Deferrals , for more information.

  • The second benefit is that earnings and gains on amounts in your 403(b) account aren’t taxed until you withdraw them. Earnings and gains on amounts in a Roth contribution program aren’t taxed if your withdrawals are qualified distributions. Otherwise, they are taxed when you withdraw them.

  • The third benefit is that you may be eligible to take a credit for elective deferrals contributed to your 403(b) account. See chapter 10, Retirement Savings Contributions Credit (Saver's Credit) .

Excluded.

If an amount is excluded from your income, it isn’t included in your total wages on your Form W-2. This means that you don’t report the excluded amount on your tax return.



Deducted.

If an amount is deducted from your income, it is included with your other wages on your Form W-2. You report this amount on your tax return, but you are allowed to subtract it when figuring the amount of income on which you must pay tax.



Who Can Participate in a 403(b) Plan?

Any eligible employee can participate in a 403(b) plan.

Eligible employees.

The following employees are eligible to participate in a 403(b) plan.

  • Employees of tax-exempt organizations established under section 501(c)(3). These organizations are usually referred to as section 501(c)(3) organizations or simply 501(c)(3) organizations.

  • Employees of public school systems who are involved in the day-to-day operations of a school.

  • Employees of cooperative hospital service organizations.

  • Civilian faculty and staff of the Uniformed Services University of the Health Sciences.

  • Employees of public school systems organized by Indian tribal governments.

  • Certain ministers (explained next).



Ministers.

The following ministers are eligible employees for whom a 403(b) account can be established.

  1. Ministers employed by section 501(c)(3) organizations.

  2. Self-employed ministers. A self-employed minister is treated as employed by a tax-exempt organization that is a qualified employer.

  3. Ministers (chaplains) who meet both of the following requirements.

    1. They are employed by organizations that aren’t section 501(c)(3) organizations.

    2. They function as ministers in their day-to-day professional responsibilities with their employers.

Throughout this publication, the term chaplain will be used to mean ministers described in the third category in the list above.

Example.

A minister employed as a chaplain by a state-run prison and a chaplain in the United States Armed Forces are eligible employees because their employers aren’t section 501(c)(3) organizations and they are employed as ministers.



Universal Availability.

Generally, all eligible employees (with certain exceptions) of an employer must be permitted to make elective deferrals (including Roth elective deferrals) if any employee of the employer may make elective deferrals. If your employer offers a 403(b) plan, you should have received information about your eligibility to participate.



Who Can Set Up a 403(b) Account?

You can’t set up your own 403(b) account. Only employers can set up 403(b) accounts. A self-employed minister can’t set up a 403(b) account for his or her benefit. If you are a self-employed minister, only the organization (denomination) with which you are associated can set up an account for your benefit.

How Can Contributions Be Made to My 403(b) Account?

Generally, only your employer can make contributions to your 403(b) account. However, some plans will allow you to make after-tax contributions (defined below).

The following types of contributions can be made to 403(b) accounts.

  1. Elective deferrals . These are contributions made under a salary reduction agreement. This agreement allows your employer to withhold money from your paycheck to be contributed directly into a 403(b) account for your benefit. Except for Roth contributions, you don’t pay income tax on these contributions until you withdraw them from the account. If your contributions are Roth contributions, you pay taxes on your contributions but any qualified distributions from your Roth account are tax free.

  2. Nonelective contributions . These are employer contributions that aren’t made under a salary reduction agreement. Nonelective contributions include matching contributions, discretionary contributions, and mandatory contributions made by your employer. You don’t pay income tax on these contributions until you withdraw them from the account.

  3. After-tax contributions . These are contributions (that aren’t Roth contributions) you make with funds that you must include in income on your tax return. A salary payment on which income tax has been withheld is a source of these contributions. If your plan allows you to make after-tax contributions, they aren’t excluded from income and you can’t deduct them on your tax return.

  4. A combination of any of the three contribution types listed above.

Self-employed minister.

If you are a self-employed minister, you are considered both an employee and an employer, and you can contribute to a retirement income account for your own benefit.



Do I Report Contributions on My Tax Return?

Generally, you don’t report contributions to your 403(b) account (except Roth contributions) on your tax return. Your employer will report contributions on your 2016 Form W-2. Elective deferrals will be shown in box 12 with code E for pre-tax amounts and code BB for Roth amounts, and the Retirement plan box will be checked in box 13. If you are a self-employed minister or chaplain, see the discussions next.

Self-employed ministers.

If you are a self-employed minister, you must report the total contributions as a deduction on your tax return. Deduct your contributions on line 28 of the 2016 Form 1040.



Chaplains.

If you are a chaplain and your employer doesn’t exclude contributions made to your 403(b) account from your earned income, you may be able to take a deduction for those contributions on your tax return.

However, if your employer has agreed to exclude the contributions from your earned income, you won’t be allowed a deduction on your tax return.

If you can take a deduction, include your contributions on line 36 of the 2016 Form 1040. Enter the amount of your deduction and write "403(b)" on the dotted line next to line 36.



How Much Can Be Contributed to My 403(b) Account?

There are limits on the amount of contributions that can be made to your 403(b) account each year. If contributions made to your 403(b) account are more than these contribution limits, penalties may apply.

Chapters 2 through 6 provide information on how to determine the amount that can be contributed to your 403(b) account.

Worksheets are provided in chapter 9 to help you determine the maximum amount that can be contributed to your 403(b) account each year. Chapter 7, Excess Contributions , describes how to prevent excess contributions and how to get an excess contribution corrected.

2. Maximum Amount Contributable (MAC)

Throughout this publication, the limit on the amount that can be contributed to your 403(b) account for any year is referred to as your maximum amount contributable (MAC). This chapter:

  • Introduces the components of your MAC,

  • Tells you how to figure your MAC, and

  • Tells you when to figure your MAC.

Components of Your MAC

Generally, before you can determine your MAC, you must first figure the components of your MAC. The components of your MAC are:

  • The limit on annual additions (chapter 3), and

  • The limit on elective deferrals (chapter 4).

How Do I Figure My MAC?

Generally, contributions to your 403(b) account are limited to the lesser of:

  • The limit on annual additions, or

  • The limit on elective deferrals.

Depending upon the type of contributions made to your 403(b) account, only one of the limits may apply to you.

Which limit applies.

Whether you must apply one or both of the limits depends on the type of contributions made to your 403(b) account during the year.



Elective deferrals only.

If the only contributions made to your 403(b) account during the year were elective deferrals made under a salary reduction agreement, you will need to figure both of the limits. Your MAC is the lesser of the two limits.



Nonelective contributions only.

If the only contributions made to your 403(b) account during the year were nonelective contributions (employer contributions not made under a salary reduction agreement), you will only need to figure the limit on annual additions. Your MAC is the limit on annual additions.



Elective deferrals and nonelective contributions.

If the contributions made to your 403(b) account were a combination of both elective deferrals made under a salary reduction agreement and nonelective contributions (employer contributions not made under a salary reduction agreement), you will need to figure both limits. Your MAC is the limit on the annual additions.



Catch-up contributions.

If you are age 50 or older, you may be able to make additional catch-up contributions, which are explained in chapter 6.



You need to figure the limit on elective deferrals to determine if you have excess elective deferrals, which are explained in chapter 7.

Worksheets.

Worksheets are available in chapter 9 to help you figure your MAC.



When Should I Figure My MAC?

At the beginning of 2017, you should refigure your 2016 MAC based on your actual compensation for 2016. This will allow you to determine if the amount that has been contributed to your 403(b) account for 2016 has exceeded the allowable limits. In some cases, this will allow you to avoid penalties and additional taxes. See chapter 7.

Generally, you should figure your MAC for the current year at the beginning of each tax year using a conservative estimate of your compensation. If your compensation changes during the year, you should refigure your MAC based on a revised conservative estimate. By doing this, you will be able to determine if contributions to your 403(b) account can be increased or should be decreased for the year.

3. Limit on Annual Additions

The first component of MAC is the limit on annual additions. This is a limit on the total contributions (elective deferrals, nonelective contributions, and after-tax contributions) that can be made to your 403(b) account. The limit on annual additions generally is the lesser of:

  • $53,000 for 2016 and $54,000 for 2017, or

  • 100% of your includible compensation for your most recent year of service.

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More than one 403(b) account. If you contributed to more than one 403(b) account, you must combine the contributions made to all 403(b) accounts maintained by your employer. If you participate in more than one 403(b) plan maintained by different employers, you don’t need to aggregate for annual addition limits.

Ministers and church employees.

If you are a minister or a church employee, you may be able to increase your limit on annual additions or use different rules when figuring your limit on annual additions. For more information, see chapter 5.



Participation in a qualified plan.

If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control to determine the total annual additions.



You can use Part I of Worksheet 1 in chapter 9 to figure your limit on annual additions.

Includible Compensation for Your Most Recent Year of Service

Definition.

Generally, includible compensation for your most recent year of service is the amount of taxable wages and benefits you received from the employer that maintained a 403(b) account for your benefit during your most recent year of service.



When figuring your includible compensation for your most recent year of service, keep in mind that your most recent year of service may not be the same as your employer's most recent annual work period. This can happen if your tax year isn’t the same as your employer's annual work period.

When figuring includible compensation for your most recent year of service, don’t mix compensation or service of one employer with compensation or service of another employer.

Most Recent Year of Service

Your most recent year of service is your last full year of service, ending on the last day of your tax year that you worked for the employer that maintained a 403(b) account on your behalf.

Tax year different from employer's annual work period.

If your tax year isn’t the same as your employer's annual work period, your most recent year of service is made up of parts of at least two of your employer's annual work periods.

Example.

A professor who reports her income on a calendar-year basis is employed on a full-time basis by a university that operates on an academic year (October through May). To figure her includible compensation for 2016, the professor's most recent year of service is her service from January through May 2016 and from October through December 2016.



Figuring Your Most Recent Year of Service

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To figure your most recent year of service, begin by determining what is a full year of service for your position. A full year of service is equal to full-time employment for your employer's annual work period.

After identifying a full year of service, begin counting the service you have provided for your employer starting with the service provided in the current year.

Part-time or employed only part of the year.

If you are a part-time or a full-time employee who is employed for only part of the year, your most recent year of service is your service this year and your service for as many previous years as is necessary to total 1 full year of service. To determine your most recent year of service, add the following periods of service.

  • Your service during the year for which you are figuring the limit on annual additions.

  • Your service during your preceding tax years until the total service equals 1 year of service or you have figured all of your service with the employer.

Example.

You were employed on a full-time basis from July through December 2014 (1/2 year of service), July through December 2015 (1/2 year of service), and October through December 2016 (1/4 year of service). Your most recent year of service for figuring your limit on annual additions for 2016 is the total of your service during 2016 (1/4 year of service), your service during 2015 (1/2 year of service), and your service during the months October through December 2014 (1/4 year of service).



Not yet employed for 1 year.

If, at the close of the year, you haven’t yet worked for your employer for 1 year (including time you worked for the same employer in all earlier years), use the period of time you have worked for the employer as your most recent year of service.



Includible Compensation

After identifying your most recent year of service, the next step is to identify the includible compensation associated with that full year of service.

Includible compensation isn’t the same as income included on your tax return. Compensation is a combination of income and benefits received in exchange for services provided to your employer.

Generally, includible compensation is the amount of income and benefits:

  • Received from the employer who maintains your 403(b) account, and

  • Must be included in your income.

Includible compensation includes the following amounts.

  • Elective deferrals (employer's contributions made on your behalf under a salary reduction agreement).

  • Amounts contributed or deferred by your employer under a section 125 cafeteria plan.

  • Amounts contributed or deferred, at the election of the employee, under an eligible section 457 nonqualified deferred compensation plan (state or local government or tax-exempt organization plan).
    Note. For information about treating elective deferrals under section 457 plans as Roth contributions, see Pub. 575.

  • Wages, salaries, and fees for personal services earned with the employer maintaining your 403(b) account.

  • Income otherwise excluded under the foreign earned income exclusion.

  • Pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan.

Includible compensation does not include the following items.

  1. Your employer's contributions to your 403(b) account.

  2. Compensation earned while your employer wasn’t an eligible employer.

  3. Your employer's contributions to a qualified plan that:

    1. Are on your behalf, and

    2. Are excludable from income.

  4. The cost of incidental life insurance. See Cost of Incidental Life Insurance, later.

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If you are a church employee or a foreign missionary, figure includible compensation using the rules explained in chapter 5.

Contributions after retirement.

Nonelective contributions may be made for an employee for up to 5 years after retirement. These contributions would be based on includible compensation for the last year of service before retirement.



Cost of Incidental Life Insurance

Includible compensation doesn’t include the cost of incidental life insurance.

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If all of your 403(b) accounts invest only in mutual funds, then you have no incidental life insurance.

If you have an annuity contract, a portion of the cost of that contract may be for incidental life insurance. If so, the cost of the insurance is taxable to you in the year contributed and is considered part of your basis when distributed. Your employer will include the cost of your insurance as taxable wages in box 1 of Form W-2.

Not all annuity contracts include life insurance. Contact your plan administrator to determine if your contract includes incidental life insurance. If it does, you will need to figure the cost of life insurance each year the policy is in effect.

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Figuring the cost of incidental life insurance. If you have determined that part of the cost of your annuity contract is for an incidental life insurance premium, you will need to determine the amount of the premium and subtract it from your includible compensation.

To determine the amount of the life insurance premiums, you will need to know the following information.

  • The value of your life insurance contract, which is the amount payable upon your death.

  • The cash value of your life insurance contract at the end of the tax year.

  • Your age on your birthday nearest the beginning of the policy year.

  • Your current life insurance protection under an ordinary retirement income life insurance policy, which is the amount payable upon your death minus the cash value of the contract at the end of the year.

You can use Worksheet A, in chapter 9, to determine the cost of your incidental life insurance.

Example.

Your new contract provides that your beneficiary will receive $10,000 if you should die before retirement. Your cash value in the contract at the end of the first year is zero. Your current life insurance protection for the first year is $10,000 ($10,000 − 0).

The cash value in the contract at the end of year two is $1,000, and the current life insurance protection for the second year is $9,000 ($10,000 – $1,000).

The 1-year cost of the protection can be calculated by using Figure 3-1. The premium rate is determined based on your age on your birthday nearest the beginning of the policy year.

Figure 3-1. Table of One-Year Term Premiums for $1,000 Life Insurance Protection

Age Cost Age Cost Age Cost
0 $0.70 35 $0.99 70 $20.62
1 0.41 36 1.01 71 22.72
2 0.27 37 1.04 72 25.07
3 0.19 38 1.06 73 27.57
4 0.13 39 1.07 74 30.18
5 0.13 40 1.10 75 33.05
6 0.14 41 1.13 76 36.33
7 0.15 42 1.20 77 40.17
8 0.16 43 1.29 78 44.33
9 0.16 44 1.40 79 49.23
10 0.16 45 1.53 80 54.56
11 0.19 46 1.67 81 60.51
12 0.24 47 1.83 82 66.74
13 0.28 48 1.98 83 73.07
14 0.33 49 2.13 84 80.35
15 0.38 50 2.30 85 88.76
16 0.52 51 2.52 86 99.16
17 0.57 52 2.81 87 110.40
18 0.59 53 3.20 88 121.85
19 0.61 54 3.65 89 133.40
20 0.62 55 4.15 90 144.30
21 0.62 56 4.68 91 155.80
22 0.64 57 5.20 92 168.75
23 0.66 58 5.66 93 186.44
24 0.68 59 6.06 94 206.70
25 0.71 60 6.51 95 228.35
26 0.73 61 7.11 96 250.01
27 0.76 62 7.96 97 265.09
28 0.80 63 9.08 98 270.11
29 0.83 64 10.41 99 281.05
30 0.87 65 11.90
31 0.90 66 13.51
32 0.93 67 15.20
33 0.96 68 16.92
34 0.98 69 18.70


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If the current published premium rates per $1,000 of insurance protection charged by an insurer for individual 1-year term life insurance premiums available to all standard risks are lower than those in the preceding table, you can use the lower rates for figuring the cost of insurance in connection with individual policies issued by the same insurer.

Example 1.

Lynne Green, age 44, and her employer enter into a 403(b) plan that will provide her with a $500 a month annuity upon retirement at age 65. The agreement also provides that if she should die before retirement, her beneficiary will receive the greater of $20,000 or the cash surrender value in the life insurance contract. Using the facts presented, we can determine the cost of Lynne's life insurance protection as shown in Table 3-1.

Lynne's employer has included $28 for the cost of the life insurance protection in her current year's income. When figuring her includible compensation for this year, Lynne will subtract $28.

Table 3-1. Worksheet A. Cost of Incidental Life Insurance

Note. Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. This amount will be used to figure includible compensation for your most recent year of service.

1. Enter the value of the contract (amount payable upon your death) 1. $20,000.00
2. Enter the cash value in the contract at the end of the year 2. 0.00
3. Subtract line 2 from line 1. This is the value of your current life insurance protection 3. $20,000.00
4. Enter your age on your birthday nearest the beginning of the policy year 4. 44
5. Enter the 1-year term premium for $1,000 of life insurance based on your age. (From Figure 3-1) 5. $1.40
6. Divide line 3 by $1,000 6. 20
7. Multiply line 6 by line 5. This is the cost of your incidental life insurance 7. $28.00


Example 2.

Lynne's cash value in the contract at the end of the second year is $1,000. In year two, the cost of Lynne's life insurance is calculated as shown in Table 3-2.

In year two, Lynne's employer will include $29.07 in her current year's income. Lynne will subtract this amount when figuring her includible compensation.

Table 3-2. Worksheet A. Cost of Incidental Life Insurance

Note. Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. This amount will be used to figure includible compensation for your most recent year of service.

1. Enter the value of the contract (amount payable upon your death) 1. $20,000.00
2. Enter the cash value in the contract at the end of the year 2. $1,000.00
3. Subtract line 2 from line 1. This is the value of your current life insurance protection 3. $19,000.00
4. Enter your age on your birthday nearest the beginning of the policy year 4. 45
5. Enter the 1-year term premium for $1,000 of life insurance based on your age. (From Figure 3-1) 5. $1.53
6. Divide line 3 by $1,000 6. 19
7. Multiply line 6 by line 5. This is the cost of your incidental life insurance 7. $29.07


Figuring Includible Compensation for Your Most Recent Year of Service

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You can use Worksheet B in chapter 9 to determine your includible compensation for your most recent year of service.

Example.

Floyd has been periodically working full-time for a local hospital since September 2014. He needs to figure his limit on annual additions for 2017. The hospital's normal annual work period for employees in Floyd's general type of work runs from January to December.

During the periods that Floyd was employed with the hospital, the hospital has always been eligible to provide a 403(b) plan to employees. Additionally, the hospital has never provided the employees with a 457 deferred compensation plan, a transportation fringe benefit plan, or a cafeteria plan.

Floyd has never worked abroad and there is no life insurance provided under the plan.

Table 3-3 shows the service Floyd provided to his employer, his compensation for the periods worked, his elective deferrals, and his taxable wages.

Table 3-3. Floyd's Compensation

Note. This table shows information Floyd will use to figure includible compensation for his most recent year of service.

Year Years of Service Taxable Wages Elective Deferrals
2017 6/12 of
a year
$42,000 $2,000
2016 4/12 of
a year
$16,000 $1,650
2015 4/12 of
a year
$16,000 $1,650


Before Floyd can figure his limit on annual additions, he must figure includible compensation for his most recent year of service.

Because Floyd isn’t planning to work the entire 2017 year, his most recent year of service will include the time he is planning to work in 2017 plus time he worked in the preceding 3 years until the time he worked for the hospital totals 1 year. If the total time he worked is less than 1 year, Floyd will treat it as if it were 1 year. He figures his most recent year of service shown in the following list.

  • Time he will work in 2017 is 6/12 of a year.

  • Time worked in 2016 is 4/12 of a year. All of this time will be used to determine Floyd's most recent year of service.

  • Time worked in 2015 is 4/12 of a year. Floyd only needs 2 months of the 4 months he worked in 2015 to have enough time to total 1 full year. Because he needs only one-half of the actual time he worked, Floyd will use only one-half of his income earned during that period to calculate wages that will be used in figuring his includible compensation.

Using the information provided in Table 3-3, wages for Floyd's most recent year of service are $66,000 ($42,000 + $16,000 + $8,000). His includible compensation for his most recent year of service is figured as shown in Table 3-4.

After figuring his includible compensation, Floyd determines his limit on annual additions for 2017 to be $54,000, the lesser of his includible compensation, $70,475 (Table 3-4), and the maximum amount of $54,000.

Table 3-4. Worksheet B. Includible Compensation for Your Most Recent Year of Service1

Note. Use this worksheet to figure includible compensation for your most recent year of service.

1. Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1. $66,000
2. Enter elective deferrals excluded from your gross income for your most recent year of service2 2. 4,4753
3. Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3. -0-
4. Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government, or of a tax-exempt organization) for your most recent year of service 4. -0-
5. Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5. -0-
6. Enter your foreign earned income exclusion for your most recent year of service 6. -0-
7. Add lines 1, 2, 3, 4, 5, and 6 7. 70,475
8. Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8. -0-
9. Enter compensation that was both:
  • Earned during your most recent year of service, and

  • Earned while your employer wasn’t qualified to maintain a 403(b) plan

9. -0-
10. Add lines 8 and 9 10. -0-
11. Subtract line 10 from line 7. This is your includible compensation for your most recent year of service 11. 70,475
1 Use estimated amounts if figuring includible compensation before the end of the year.
2 Elective deferrals made to a designated Roth account aren’t excluded from your gross income and shouldn’t be included on this line.
3 $4,475 ($2,000 + $1,650 + $825).

4. Limit on Elective Deferrals

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 that allows 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.

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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;

  • Roth contribution programs;

  • Section 501(c)(18) plans, to the extent excluded from income;

  • Savings incentive match plan for employees (SIMPLE) plans;

  • Salary reduction simplified employee pension (SARSEP) plans; and

  • All 403(b) plans.

Roth contribution program.

Your 403(b) plan may allow you to designate all or a portion of your elective deferrals as Roth contributions. Elective deferrals designated as Roth contributions must be maintained in a separate Roth account and aren’t excludable from your gross income.

The maximum amount of contributions allowed under a Roth contribution program is your limit on elective deferrals, less your elective deferrals not designated as Roth contributions. For more information on the Roth contribution program, see Pub. 560, Retirement Plans for Small Business.



Excess elective deferrals.

If the amount contributed is more than the allowable limit, you must include the excess that isn’t a Roth contribution in your gross income for the year contributed.



General Limit

Under the general limit on elective deferrals, the most that can be contributed to your 403(b) account through a salary reduction agreement is $18,000 for 2016 and 2017. This limit applies without regard to community property laws.

15-Year Rule

If you have at least 15 years of service with an educational organization (such as a public or private school), hospital, home health service agency, health and welfare service agency, church, or convention or association of churches (or associated organization) and it is allowed by the terms of the plan document, the limit on elective deferrals to your 403(b) account is increased by the least of:

  1. $3,000;

  2. $15,000, reduced by the sum of:

    1. The additional pre-tax elective deferrals made in prior years because of this rule, plus

    2. The aggregate amount of designated Roth contributions permitted for prior years because of this rule; or

  3. $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 (sometimes referred to as the special section 403(b) catch-up or the years-of-service catch-up), your elective deferrals under this limit can be as high as $21,000 for 2016 and 2017.

To determine whether you have 15 years of service with your employer, see Years of Service next.

Years of Service

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.

For purposes of the 15-year rule, years of service are calculated through the year for which the calculation is being made. For example, to determine the limit for 2016, you count years of service through 2016.

Definition

Your years of service are the total number of years you have worked as a full-time employee for the employer maintaining your 403(b) account as of the end of the year.

Figuring Your Years of Service

Take the following rules into account when figuring your years of service.

Status of employer.

Your years of service include only periods during which your employer was a qualified employer. Your plan administrator can tell you whether or not your employer was qualified during all your periods of service.



Service with one employer.

Generally, you can’t count service for any employer other than the one who maintains your 403(b) account.



Church employee.

If you are a church employee, treat all of your years of service with related church organizations as years of service with the same employer. For more information about church employees, see chapter 5.



Self-employed ministers.

If you are a self-employed minister, your years of service include full and part years in which you have been treated as employed by a tax-exempt organization that is a qualified employer.



Total years of service.

When figuring prior years of service, figure each year individually and then add the individual years of service to determine your total 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 2012. She has always worked full-time for each annual work period. At the end of 2016, 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
2012 Sept.–Dec. .5 year .5 year
2013 Feb.–May .5 year 1 year
Sept.–Dec. .5 year
2014 Feb.–May .5 year 1 year
Sept.–Dec. .5 year
2015 Feb.–May .5 year 1 year
Sept.–Dec. .5 year
2016 Feb.–May .5 year 1 year
Sept.–Dec. .5 year
Total years of service 4.5 years




Full-time or part-time.

To figure your years of service, you must analyze each year individually and determine whether you worked full-time for the full year or something other than full-time. When determining whether you worked full-time or something other than full-time, use your employer's annual work period as the standard.



Employer's annual work period.

Your employer's annual work period is the usual amount of time an individual working full-time in a specific position is required to work. Generally, this period of time is expressed in days, weeks, months, or semesters, and can span 2 calendar years.

Note.

You can’t accumulate more than 1 year of service in a 12-month period.

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.



Full-Time Employee for the Full 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.

How to compare.

You can use any method that reasonably and accurately reflects the amount of work required. For example, if you are a teacher, you can use the number of hours of classroom instruction as a measure of the amount of work required.

In determining whether positions with the same employer are the same, consider all of the facts and circumstances concerning the positions, including the work performed, the methods by which pay is determined, and the descriptions (or titles) of the positions.

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.

If no one else works for your employer in the same position, compare your work with the work normally required of others who held the same position with similar employers or similar positions with your employer.



Full year of service.

A full year of service for a particular position means the usual annual work period of anyone employed full-time in that general type of work at that place of employment.

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.



Other Than Full-Time for the 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.

Full-time for part of the year.

If, during a year, you were employed full-time for only part of your employer's annual work period, figure the fraction for that year as follows.

  • 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 2016 spring semester (February 2016 through May 2016). 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 2016 is as follows.

Number of months Jason worked = 4 = 1
Number of months in annual work period 8 2



Part-time for the full year.

If, during a year, you were employed part-time for the employer's entire annual work period, you figure the fraction for that year as follows.

  • The numerator (top number) is the number of hours or days you worked.

  • The denominator (bottom number) is the number of hours or days normally 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 1/3 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



Part-time for part of the year.

If, during any year, you were employed part-time for only part of your employer's annual work period, you figure your fraction for that year by multiplying two fractions.

Figure the first fraction as though you had worked full-time for part of the annual work period. The fraction is as follows.

  • 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.

Figure the second fraction as though you had worked part-time for the entire annual work period. The fraction is as follows.

  • The numerator (top number) is the number of hours or days you worked.

  • The denominator (bottom number) is the number of hours or days normally required of someone holding the same position who works full-time.

Once you have figured these two fractions, multiply them together to determine the fraction representing your partial year of service for the year.

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



Figuring the Limit on Elective Deferrals

You can use Part II of Worksheet 1 in chapter 9 to figure the limit on elective deferrals.

Example

Floyd has figured his limit on annual additions. The only other component needed before he can determine his MAC for 2017 is his limit on elective deferrals.

Figuring Floyd's limit on elective deferrals.

Floyd has been employed with his current employer for less than 15 years. He isn’t eligible for the special 15-year increase. Therefore, his limit on elective deferrals for 2017 is $18,000 as shown in Table 4-2.



Floyd's employer won’t make any nonelective contributions to his 403(b) account and Floyd won’t make any after-tax contributions. Additionally, Floyd's employer doesn’t offer a Roth contribution program.

Figuring Floyd's MAC

Floyd has determined that his limit on annual additions for 2017 is $54,000 and his limit on elective deferrals is $18,000. 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 2017 is $18,000, 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:
  • For 2016, enter $53,000

  • For 2017, enter $54,000

2. 54,000
3. Enter the lesser of line 1 or line 2. This is your limit on annual additions 3. 54,000
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:
  • For 2016, enter $18,000

  • For 2017, enter $18,000

4. 18,000
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 made for you by the qualifying organization for prior years 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 the total of additional pre-tax elective deferrals made in prior years under the 15-year rule 11.
12. Enter the aggregate amount of all designated Roth contributions permitted for prior years under the 15-year rule 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 line 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. 18,000
Part III. Maximum Amount Contributable
18.
  • If you had only nonelective contributions, enter the amount from line 3. This is your MAC.

  • If you had only elective deferrals, enter the lesser of line 3 or 17. This is your MAC.

  • If you had both elective deferrals and nonelective contributions, enter the amount from line 3. This is your MAC. (Use the amount on line 17 to determine if you have excess elective deferrals as explained in chapter 7.)

18. 18,000


5. Ministers and Church Employees

Self-employed ministers and church employees who participate in 403(b) plans generally follow the same rules as other 403(b) plan participants.

This means that if you are a self-employed minister or a church employee, your MAC generally is the lesser of:

  • Your limit on annual additions, or

  • Your limit on elective deferrals.

For most ministers and church employees, the limit on annual additions is figured without any changes. This means that if you are a minister or church employee, your limit on annual additions generally is the lesser of:

  • $53,000 for 2016 and $54,000 for 2017, or

  • Your includible compensation for your most recent year of service.

Although, in general, the same limit applies, church employees can choose an alternative limit and there are changes in how church employees, foreign missionaries, and self-employed ministers figure includible compensation for the most recent year of service. This chapter will explain the alternative limit and the changes.

Who is a church employee?

A church employee is anyone who is an employee of a church or a convention or association of churches, including an employee of a tax-exempt organization controlled by or associated with a church or a convention or association of churches.



Alternative Limit for Church Employees

If you are a church employee, you can choose to use $10,000 a year as your limit on annual additions, even if your annual additions figured under the general rule is less.

Total contributions over your lifetime under this choice can’t be more than $40,000.

Changes to Includible Compensation for Most Recent Year of Service

There are two types of changes in determining includible compensation for the most recent year of service. They are:

  • Changes in how the includible compensation of foreign missionaries and self-employed ministers is figured, and

  • A change to the years that are counted when figuring the most recent year of service for church employees and self-employed ministers.

Changes to Includible Compensation

Includible compensation is figured differently for foreign missionaries and self-employed ministers.

Foreign missionary.

If you are a foreign missionary, your includible compensation includes foreign earned income that may otherwise be excludable from your gross income under section 911.

If you are a foreign missionary, and your adjusted gross income is $17,000 or less, contributions to your 403(b) account won’t be treated as exceeding the limit on annual additions if the contributions aren’t in excess of $3,000.

You are a foreign missionary if you are either a layperson or a duly ordained, commissioned, or licensed minister of a church and you meet both of the following requirements.

  • You are an employee of a church or convention or association of churches.

  • You are performing services for the church outside the United States.



Self-employed minister.

If you are a self-employed minister, you are treated as an employee of a tax-exempt organization that is a qualified employer. Your includible compensation is your net earnings from your ministry minus the contributions made to the retirement plan on your behalf and the deductible portion of your self-employment tax.



Changes to Years of Service

Generally, only service with the employer who maintains your 403(b) account can be counted when figuring your limit on annual additions.

Church employee.

If you are a church employee, treat all of your years of service as an employee of a church or a convention or association of churches as years of service with one employer.



Self-employed minister.

If you are a self-employed minister, your years of service include full and part years during which you were self-employed.



6. Catch-Up Contributions

The most that can be contributed to your 403(b) account is the lesser of your limit on annual additions or your limit on elective deferrals.

If you will be age 50 or older by the end of the year, you may also be able to make additional catch-up contributions. These additional contributions can’t be made with after-tax employee contributions.

You are eligible to make catch-up contributions if:

  • You will have reached age 50 by the end of the year,

  • Your employer's plan document allows for catch-up contributions, and

  • The maximum amount of elective deferrals that can be made to your 403(b) account have been made for the plan year.

The maximum amount of catch-up contributions is the lesser of:

  • $6,000 for 2016 and 2017; or

  • The excess of your compensation for the year, over the elective deferrals that aren’t catch-up contributions.

Figuring catch-up contributions.

When figuring allowable catch-up contributions, combine all catch-up contributions made by your employer on your behalf to the following plans.

  • Qualified retirement plans. (To determine if your plan is a qualified plan, ask your plan administrator.)

  • 403(b) plans.

  • Salary reduction simplified employee pension (SARSEP) plans.

  • SIMPLE plans.

The total amount of the catch-up contributions on your behalf to all plans maintained by your employer can’t be more than the annual limit. The limit is $6,000 for 2016 and 2017.

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If you are eligible for both the 15-year rule increase in elective deferrals and the age 50 catch-up, allocate amounts first under the 15-year rule and next as an age 50 catch-up.

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Catch-up contributions aren’t counted against your MAC. Therefore, the maximum amount that you are allowed to have contributed to your 403(b) account is your MAC plus your allowable catch-up contributions.



You can use Worksheet C in chapter 9 to figure your limit on catch-up contributions.

7. Excess Contributions

If your actual contributions (not including catch-up contributions) are greater than your MAC, you have an excess contribution. Excess contributions can result in income tax, additional taxes, and penalties. The effect of excess contributions depends on the type of excess contribution. This chapter discusses excess contributions to your 403(b) account.

How Do I Know If I Have Excess Contributions?

At the end of the year or the beginning of the next year, you should refigure your MAC based on your actual compensation and actual contributions made to your account.

If the actual contributions (not including catch-up contributions) to your account are greater than your MAC, you have excess contributions. If, at any time during the year, your employment status or your compensation changes, you should refigure your MAC using a revised estimate of compensation to prevent excess contributions.

What Happens If I Have Excess Contributions?

Certain excess contributions in a 403(b) account can be corrected. The effect of an excess 403(b) contribution will depend on the type of excess contribution.

Types of excess contributions.

If, after checking your actual contributions, you determine that you have an excess, the first thing is to identify the type of excess that you have. Excess contributions to a 403(b) account are categorized as either an:

  • Excess annual addition, or

  • Excess elective deferral.



Excess Annual Addition

An excess annual addition is a contribution (not including catch-up contributions) that is more than your limit on annual additions. To determine your limit on annual additions, see chapter 3 (chapter 5 for ministers or church employees).

In the year that your contributions are more than your limit on annual additions, the excess amount will be included in your income.

Excise Tax

If your 403(b) account invests in mutual funds, and you exceed your limit on annual additions, you may be subject to a 6% excise tax on the excess contribution. The excise tax doesn’t apply to funds in an annuity account or to excess deferrals.

You must pay the excise tax each year in which there are excess contributions in your account. Excess contributions can be corrected by contributing less than the applicable limit in later years or by making permissible distributions. See chapter 8 for a discussion on permissible distributions.

You can’t deduct the excise tax.

Reporting requirement.

You must file Form 5330 if there has been an excess contribution to a custodial account and that excess hasn’t been corrected.



Excess Elective Deferral

An excess elective deferral is the amount that is more than your limit on elective deferrals. To determine your limit on elective deferrals, see chapter 4.

Your employer's 403(b) plan may contain language permitting it to distribute excess deferrals. If so, it may require that in order to get a distribution of excess deferrals, you either notify the plan of the amount of excess deferrals or designate a distribution as an excess deferral. The plan may require that the notification or designation be in writing and may require that you certify or otherwise establish that the designated amount is an excess deferral. A plan isn’t required to permit distribution of excess deferrals.

Correction of excess deferrals during year.

If you have excess deferrals for a year, a corrective distribution may be made only if both of the following conditions are satisfied.

  • The plan and either you or your employer designate the distribution as an excess deferral to the extent you have excess deferrals for the year.

  • The correcting distribution is made after the date on which the excess deferral was made.



Correction of excess deferrals after the year.

If you have excess deferrals for a year, you may receive a correcting distribution of the excess deferral no later than April 15 of the following year. The plan can distribute the excess deferral (and any income allocable to the excess) no later than April 15 of the year following the year the excess deferral was made.

Note.

When April 15 falls on a Saturday, Sunday, or legal holiday, a return is considered timely filed if filed on the next succeeding day that isn’t a Saturday, Sunday, or legal holiday.



Tax treatment of excess deferrals not attributable to Roth contributions.

If the excess deferral is distributed by April 15, it is included in your income in the year contributed and the earnings on the excess deferral will be taxed in the year distributed.

Note.

When April 15 falls on a Saturday, Sunday, or legal holiday, a return is considered timely filed if filed on the next succeeding day that isn’t a Saturday, Sunday, or legal holiday.



Tax treatment of excess deferrals attributable to Roth contributions.

For these rules, see Regulations section 1.402(g)-1(e).



8. Distributions and Rollovers

Distributions

Permissible distributions.

Generally, a distribution can’t be made from a 403(b) account until the employee:

  • Reaches age 59½;

  • Has a severance from employment;

  • Dies;

  • Becomes disabled;

  • In the case of elective deferrals, encounters financial hardship; or

  • Has a qualified reservist distribution.



In most cases, the payments you receive or that are made available to you under your 403(b) account are taxable in full as ordinary income. In general, the same tax rules apply to distributions from 403(b) plans that apply to distributions from other retirement plans. These rules are explained in Pub. 575. Pub. 575 also discusses the additional tax on early distributions from retirement plans.

Retired public safety officers.

If you are an eligible retired public safety officer, distributions of up to $3,000, made directly from your 403(b) plan to pay accident, health, or long-term care insurance, aren’t included in your taxable income. The premiums can be for you, your spouse, or your dependents.

A public safety officer is a law enforcement officer, fire fighter, chaplain, or member of a rescue squad or ambulance crew.

For additional information, see Pub. 575.



Distribution for active reservist.

The 10% penalty for early withdrawals won’t apply to a qualified reservist distribution attributable to elective deferrals from a 403(b) plan. A qualified reservist distribution is a distribution that is made:

  • To an individual who is a reservist or national guardsman and who was ordered or called to active duty for a period in excess of 179 days or for an indefinite period, and

  • During the period beginning on the date of the order or call to duty and ending at the close of the active duty period.



Minimum Required Distributions

You must receive all, or at least a certain minimum, of your interest accruing after 1986 in the 403(b) plan by April 1 of the calendar year following the later of the calendar year in which you become age 70½, or the calendar year in which you retire.

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Check with your employer, plan administrator, or provider to find out whether this rule also applies to pre-1987 accruals. If not, a minimum amount of these accruals must begin to be distributed by the later of the end of the calendar year in which you reach age 75 or April 1 of the calendar year following retirement. For each year thereafter, the minimum distribution must be made by the last day of the year. If you don’t receive the required minimum distribution, you are subject to a nondeductible 50% excise tax on the difference between the required minimum distribution and the amount actually distributed.

No Special 10-Year Tax Option

A distribution from a 403(b) plan doesn’t qualify as a lump-sum distribution. This means you can’t use the special 10-year tax option to calculate the taxable portion of a 403(b) distribution. For more information, see Pub. 575.

Transfer of Interest in 403(b) Contract

Contract exchanges.

If you transfer all or part of your interest from a 403(b) contract to another 403(b) contract (held in the same plan), the transfer is tax free, and is referred to as a contract exchange. This was previously known as a 90-24 transfer. A contract exchange is similar to a 90-24 transfer with one major difference. Previously, you were able to accomplish the transfer without your employer’s involvement. After September 24, 2007, all such transfers are accomplished through a contract exchange requiring your employer’s involvement. In addition, the plan must provide for the exchange and the transferred interest must be subject to the same or stricter distribution restrictions. Finally, your accumulated benefit after the exchange must be equal to what it was before the exchange.

Transfers that don’t satisfy this rule are plan distributions and are generally taxable as ordinary income.



Plan-to-plan transfers.

You may also transfer part or all of your interest from a 403(b) plan to another 403(b) plan if you are an employee of (or were formerly employed by) the employer of the plan to which you would like to transfer. Both the initial plan and the receiving plan must provide for transfers. Your accumulated benefit after the transfer must be at least equal to what it was before the transfer. The new plan’s restrictions on distributions must be the same or stricter than those of the original plan.



Tax-free transfers for certain cash distributions.

A tax-free transfer may also apply to a cash distribution of your 403(b) account from an insurance company that is subject to a rehabilitation, conservatorship, insolvency, or similar state proceeding. To receive tax-free treatment, you must do all of the following.

  • Withdraw all the cash to which you are entitled in full settlement of your contract rights or, if less, the maximum permitted by the state.

  • Reinvest the cash distribution in a single policy or contract issued by another insurance company or in a single custodial account subject to the same or stricter distribution restrictions as the original contract not later than 60 days after you receive the cash distribution.

  • Assign all future distribution rights to the new contract or account for investment in that contract or account if you received an amount that is less than what you are entitled to because of state restrictions.

In addition to the preceding requirements, you must provide the new insurer with a written statement containing all of the following information.

  • The gross amount of cash distributed under the old contract.

  • The amount of cash reinvested in the new contract.

  • Your investment in the old contract on the date you receive your first cash distribution.

Also, you must attach the following items to your timely filed income tax return in the year you receive the first distribution of cash.

  1. A copy of the statement you gave the new insurer.

  2. A statement that includes:

    1. The words ELECTION UNDER REV. PROC. 92-44,

    2. The name of the company that issued the new contract, and

    3. The new policy number.



Direct trustee-to-trustee transfer.

If you make a direct trustee-to-trustee transfer from your governmental 403(b) account to a defined benefit governmental plan, it may not be includible in gross income.

The transfer amount isn’t includible in gross income if it is made to:

  • Purchase permissive service credits; or

  • Repay contributions and earnings that were previously refunded under a forfeiture of service credit under the plan, or under another plan maintained by a state or local government employer within the same state.



After-tax contributions.

For distributions beginning after December 31, 2006, after-tax contributions can be rolled over between a 403(b) plan and a defined benefit plan, IRA, or a defined contribution plan. If the rollover is to or from a 403(b) plan, it must occur through a direct trustee-to-trustee transfer.



Permissive service credit.

A permissive service credit is credit for a period of service recognized by a defined benefit governmental plan only if you voluntarily contribute to the plan an amount that doesn’t exceed the amount necessary to fund the benefit attributable to the period of service and the amount contributed is in addition to the regular employee contribution, if any, under the plan.

A permissive service credit may also include service credit for up to 5 years where there is no performance of service, or service credited to provide an increased benefit for service credit which a participant is receiving under the plan.

Check with your plan administrator as to the type and extent of service that may be purchased by this transfer.



Tax-Free Rollovers

You can generally roll over tax free all or any part of a distribution from a 403(b) plan to a traditional IRA or a non-Roth eligible retirement plan, except for any nonqualifying distributions, described later. You may also roll over any part of a distribution from a 403(b) plan by converting it through a direct rollover, described below, to a Roth IRA. Conversion amounts are generally includible in your taxable income in the year of the distribution from your 403(b) account. See Pub. 590-A for more information about conversion into a Roth IRA.

Note.

A participant is required to roll over distribution amounts received within 60 calendar days in order for the amount to be treated as nontaxable. Distribution amounts that are rolled over within the 60 days aren’t subject to the 10% early distribution penalty.

Rollovers to and from 403(b) plans.

You can generally roll over tax free all or any part of a distribution from an eligible retirement plan to a 403(b) plan. Beginning January 1, 2008, distributions from tax-qualified retirement plans and tax-sheltered annuities can be converted by making a direct rollover into a Roth IRA subject to the restrictions that currently apply to rollovers from a traditional IRA into a Roth IRA. Converted amounts are generally includible in your taxable income in the year of the distribution from your 403(b) account. See Pub. 590-A for more information on conversion into a Roth IRA.

If a distribution includes both pre-tax contributions and after-tax contributions, the portion of the distribution that is rolled over is treated as consisting first of pre-tax amounts (contributions and earnings that would be includible in income if no rollover occurred). This means that if you roll over an amount that is at least as much as the pre-tax portion of the distribution, you don’t have to include any of the distribution in income.

For more information on rollovers and eligible retirement plans, see Pub. 575.



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If you roll over money or other property from a 403(b) plan to an eligible retirement plan, see Pub. 575 for information about possible effects on later distributions from the eligible retirement plan.

Hardship exception to rollover rules.

The IRS may waive the 60-day rollover period if the failure to waive such requirement would be against equity or good conscience, including cases of casualty, disaster, or other events beyond the reasonable control of an individual.



Ways to get a waiver of the 60-day rollover requirement.

There are three ways to obtain a waiver of the 60-day rollover requirement:

  • You qualify for an automatic waiver,

  • You self-certify that you met the requirements of a waiver, or

  • You request and receive a private letter ruling granting a waiver.



How do you qualify for an automatic waiver?

You qualify for an automatic waiver if all of the following apply.

  • The financial institution receives the funds on your behalf before the end of the 60-day rollover period.

  • You followed all of the procedures set by the financial institution for depositing the funds into an IRA or other eligible retirement plan within the 60-day rollover period (including giving instructions to deposit the funds into a plan or IRA).

  • The funds are not deposited into a plan or IRA within the 60-day rollover period solely because of an error on the part of the financial institution.

  • The funds are deposited into a plan or IRA within 1 year from the beginning of the 60-day rollover period.

  • It would have been a valid rollover if the financial institution had deposited the funds as instructed.


If you do not qualify for an automatic waiver, you can use the self-certification procedure to make a late rollover contribution or you can apply to the IRS for a waiver of the 60-day rollover requirement.



How do you self-certify that you qualify for a waiver?

Based on Revenue Procedure 2016-47, 2016-37 I.R.B. 346, available at www.irs.gov/irb/2016-37_IRB/ar09.html, you may make a written certification to a plan administrator or an IRA trustee that you missed the 60-day rollover contribution deadline because of one or more of the 11 reasons listed in Revenue Procedure 2016-47. A plan administrator or an IRA trustee may rely on the certification in accepting and reporting receipt of the rollover contribution. You may make the certification by using the model letter in the appendix to the revenue procedure or by using a letter that is substantially similar. There is no IRS fee for self certification. A copy of the certification should be kept in your files and be available if requested on audit.

For additional information on rollovers, see Pub. 590-A.



How do you apply for a waiver ruling and what is the fee?

You can request a ruling according to the procedures outlined in Revenue Procedure 2003-16 and Revenue Procedure 2016-4. The appropriate user fee of $10,000 must accompany every request for a waiver of the 60-day rollover requirement (see the user fee chart in Revenue Procedure 2016-8).



How does the IRS determine whether to grant a waiver in a private letter ruling?

In determining whether to issue a favorable letter ruling granting a waiver, the IRS will consider all of the relevant facts and circumstances, including:

  • Whether errors were made by the financial institution, i.e., the plan administrator, or IRA trustee, issuer or custodian;

  • Whether you were unable to complete the rollover within the 60-day period due to death, disability, hospitalization, incarceration, serious illness, restrictions imposed by a foreign country, or postal error;

  • Whether you used the amount distributed; and

  • How much time has passed since the date of the distribution.

Note.

The IRS can waive only the 60-day rollover requirement and not the other requirements for a valid rollover contribution. For example, the IRS cannot waive the IRA one-rollover-per-year rule

For more information on waivers of the 60-day rollover requirement, go to www.irs.gov/retirement-plans/retirement-plans-faqs-relating-to-waivers-of-the-60-day-rollover-requirement.



Eligible retirement plans.

The following are considered eligible retirement plans.

  • IRAs.

  • Roth IRA.

  • 403(a) annuity plans.

  • 403(b) plans.

  • Government eligible 457 plans.

  • Qualified retirement plans.


If the distribution is from a designated Roth account, then the only eligible retirement plan is another designated Roth account or a Roth IRA.



Nonqualifying distributions.

You can’t roll over tax free:

  • Minimum required distributions (generally required to begin at age 70½);

  • Substantially equal payments over your life or life expectancy;

  • Substantially equal payments over the joint lives or life expectancies of your beneficiary and you;

  • Substantially equal payments for a period of 10 years or more;

  • Hardship distributions; or

  • Corrective distributions of excess contributions or excess deferrals, and any income allocable to the excess, or excess annual additions and any allocable gains.



Rollover of nontaxable amounts.

You may be able to roll over the nontaxable part of a distribution (such as your after-tax contributions) made to another eligible retirement plan, traditional IRA, or Roth IRA. The transfer must be made either through a direct rollover to an eligible plan that separately accounts for the taxable and nontaxable parts of the rollover or through a rollover to a traditional IRA or Roth IRA.

If you roll over only part of a distribution that includes both taxable and nontaxable amounts, the amount you roll over is treated as coming first from the taxable part of the distribution.



Direct rollovers of 403(b) plan distributions.

You have the option of having your 403(b) plan make the rollover directly to a traditional IRA, Roth IRA, or new plan. Before you receive a distribution, your plan will give you information on this. It is generally to your advantage to choose this option because your plan won’t withhold tax on the distribution if you choose it.



Distribution received by you.

If you receive a distribution that qualifies to be rolled over, you can roll over all or any part of the distribution. Generally, you will receive only 80% of the distribution because 20% must be withheld. If you roll over only the 80% you receive, you must pay tax on the 20% you didn’t roll over. You can replace the 20% that was withheld with other money within the 60-day period to make a 100% rollover.



Voluntary deductible contributions.

For tax years 1982 through 1986, employees could make deductible contributions to a 403(b) plan under the IRA rules instead of deducting contributions to a traditional IRA.

If you made voluntary deductible contributions to a 403(b) plan under these traditional IRA rules, the distribution of all or part of the accumulated deductible contributions may be rolled over if it otherwise qualifies as a distribution you can roll over. Accumulated deductible contributions are the deductible contributions:

  • Plus

    1. Income allocable to the contributions,

    2. Gain allocable to the contributions, and

  • Minus

    1. Expenses and losses allocable to the contributions, and

    2. Distributions from the contributions, income, or gain.



Excess employer contributions.

The portion of a distribution from a 403(b) plan transferred to a traditional IRA that was previously included in income as excess employer contributions isn’t an eligible rollover distribution.

Its transfer doesn’t affect the rollover treatment of the eligible portion of the transferred amounts. However, the ineligible portion is subject to the traditional IRA contribution limits and may create an excess IRA contribution subject to a 6% excise tax (see chapter 1 of Pub. 590-A).



Qualified domestic relations order.

You may be able to roll over tax free all or any part of an eligible rollover distribution from a 403(b) plan that you receive under a qualified domestic relations order (QDRO). If you receive the interest in the 403(b) plan as an employee's spouse or former spouse under a QDRO, all of the rollover rules apply to you as if you were the employee. You can roll over your interest in the plan to a traditional IRA or another 403(b) plan. For more information on the treatment of an interest received under a QDRO, see Pub. 575.



Spouses of deceased employees.

If you are the spouse of a deceased employee, you can roll over the qualifying distribution attributable to the employee. You can make the rollover to any eligible retirement plan.

After you roll money and other property over from a 403(b) plan to an eligible retirement plan, and you take a distribution from that plan, you won’t be eligible to receive the capital gain treatment or the special averaging treatment for the distribution.



Second rollover.

If you roll over a qualifying distribution to a traditional IRA, you can, if certain conditions are satisfied, later roll the distribution into another 403(b) plan. For more information, see IRA as a holding account (conduit IRA) for rollovers to other eligible plans in chapter 1 of Pub. 590-A.



Nonspouse beneficiary.

A nonspouse beneficiary may make a direct rollover of a distribution from a 403(b) plan of a deceased participant if the rollover is a direct transfer to an inherited IRA established to receive the distribution. If the rollover is a direct trustee-to-trustee transfer to an IRA established to receive the distribution:

  • The transfer will be treated as an eligible rollover distribution,

  • The IRA will be considered an inherited account, and

  • The required minimum distribution rules that apply in instances where the participant dies before the entire interest is distributed will apply to the transferred IRA.

For more information on IRAs, see Pubs. 590-A and 590-B.



Frozen deposits.

The 60-day period usually allowed for completing a rollover is extended for any time that the amount distributed is a frozen deposit in a financial institution. The 60-day period can’t end earlier than 10 days after the deposit ceases to be a frozen deposit.

A frozen deposit is any deposit that on any day during the 60-day period can’t be withdrawn because:

  1. The financial institution is bankrupt or insolvent, or

  2. The state where the institution is located has placed limits on withdrawals because one or more banks in the state are (or are about to be) bankrupt or insolvent.



Gift Tax

If, by choosing or not choosing an election, or option, you provide an annuity for your beneficiary at or after your death, you may have made a taxable gift equal to the value of the annuity.

Joint and survivor annuity.

If the gift is an interest in a joint and survivor annuity where only you and your spouse have the right to receive payments, the gift will generally be treated as qualifying for the unlimited marital deduction.



More information.

For information on the gift tax, see Pub. 559, Survivors, Executors, and Administrators.



9. Worksheets

Chapter 2 introduced you to the term maximum amount contributable (MAC). Generally, your MAC is the lesser of your:

The worksheets in this chapter can help you figure the cost of incidental life insurance, your includible compensation, your limit on annual additions, your limit on elective deferrals, your limit on catch-up contributions, and your MAC.

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After completing the worksheets, you should maintain them with your 403(b) records for that year. Do not attach them to your tax return. At the end of the year or the beginning of the next year, you should compare your estimated compensation figures with your actual figures.

If your compensation is the same as, or more than, the projected amounts and the calculations are correct, then you should simply file these worksheets with your other tax records for the year.

If your compensation was lower than your estimated figures, you will need to check the amount contributed during the year to determine if contributions are more than your MAC.

When Should I Figure MAC?

At the beginning of each year, you should figure your MAC using a conservative estimate of your compensation. Should your income change during the year, you should refigure your MAC based on a revised conservative estimate. By doing this, you will be able to determine if contributions to your 403(b) account should be increased or decreased for the year.

Checking the Previous Year's Contributions

At the beginning of the following year, you should refigure your MAC based on your actual earned income.

At the end of the current year or the beginning of the next year, you should check your contributions to be sure you didn’t exceed your MAC. This means refiguring your limit based on your actual compensation figures for the year. This will allow you to determine if the amount contributed is more than the allowable amounts, and possibly avoid additional taxes.

Available Worksheets

The following worksheets have been provided to help you figure your MAC.

Worksheet A. Cost of Incidental Life Insurance

Note. Use this worksheet to figure the cost of incidental life insurance included in your annuity contract. This amount will be used to figure includible compensation for your most recent year of service.

1. Enter the value of the contract (amount payable upon your death) 1.
2. Enter the cash value in the contract at the end of the year 2.
3. Subtract line 2 from line 1. This is the value of your current life insurance protection 3.
4. Enter your age on your birthday nearest the beginning of the policy year 4.
5. Enter the 1-year term premium for $1,000 of life insurance based on your age. (From Figure 3-1) 5.
6. Divide line 3 by $1,000 6.
7. Multiply line 6 by line 5. This is the cost of your incidental life insurance 7.

Worksheet B. Includible Compensation for Your Most Recent Year of Service1

Note. Use this worksheet to figure includible compensation for your most recent year of service.

1. Enter your includible wages from the employer maintaining your 403(b) account for your most recent year of service 1.
2. Enter elective deferrals excluded from your gross income for your most recent year of service2 2.
3. Enter amounts contributed or deferred by your employer under a cafeteria plan for your most recent year of service 3.
4. Enter amounts contributed or deferred by your employer according to your election to your 457 account (a nonqualified plan of a state or local government or of a tax-exempt organization) for your most recent year of service 4.
5. Enter pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan for your most recent year of service 5.
6. Enter your foreign earned income exclusion for your most recent year of service 6.
7. Add lines 1, 2, 3, 4, 5, and 6 7.
8. Enter the cost of incidental life insurance that is part of your annuity contract for your most recent year of service 8.
9. Enter compensation that was both:
  • Earned during your most recent year of service, and

  • Earned while your employer wasn’t qualified to maintain a 403(b) plan

9.
10. Add lines 8 and 9 10.
11. Subtract line 10 from line 7. This is your includible compensation for your most recent year of service 11.
1 Use estimated amounts if figuring includible compensation before the end of the year.
2 Elective deferrals made to a designated Roth account aren’t excluded from your gross income and shouldn’t be included on this line.

Worksheet C. Limit on Catch-Up Contributions

Note. If you will be age 50 or older by the end of the year, use this worksheet to figure your limit on catch-up contributions.

1. Maximum catch-up contributions 1. $6,000
2. Enter your includible compensation for your most recent year of service 2.
3. Enter your elective deferrals 3.
4. Subtract line 3 from line 2 4.
5. Enter the lesser of line 1 or line 4. This is your limit on catch-up contributions 5.

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.
2. Maximum1:
  • For 2016, enter $53,000

  • For 2017, enter $54,000

2.
3. Enter the lesser of line 1 or line 2. This is your limit on annual additions 3.
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:
  • For 2016, enter $18,000

  • For 2017, enter $18,000

4.
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 made for you by the qualifying organization for prior years 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 the total of additional pre-tax elective deferrals made in prior years under the 15-year rule 11.
12. Enter the aggregate amount of all designated Roth contributions permitted for prior years under the 15-year rule 12.
13. Add line 11 and line 12 13.
14. Subtract line 13 from line 10 14.
15. Maximum additional contributions 15. $ 3,000
16. Enter the least of line 9, 14, or 15. This is your increase in the limit for long service 16.
17. Add lines 4 and 16. This is your limit on elective deferrals 17.
Part III. Maximum Amount Contributable
18.
  • If you had only nonelective contributions, enter the amount from line 3. This is your MAC.

  • If you had only elective deferrals, enter the lesser of line 3 or 17. This is your MAC.

  • If you had both elective deferrals and nonelective contributions, enter the amount from line 3. This is your MAC. (Use the amount on line 17 to determine if you have excess elective deferrals as explained in chapter 7.)

18.
1 If you participate in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pension plans of all corporations, partnerships, and sole proprietorships in which you have more than 50% control. You must also combine the contributions made to all 403(b) accounts on your behalf by your employer.


10. Retirement Savings Contributions Credit (Saver's Credit)

If you or your employer make eligible contributions (defined later) to a retirement plan, you may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly). This credit could reduce the federal income tax you pay dollar for dollar.

Can you claim the credit?

If you or your employer make eligible contributions to a retirement plan, you can claim the credit if all of the following apply.

  1. You aren’t under age 18.

  2. You aren’t a full-time student (explained next).

  3. No one else, such as your parent(s), claims an exemption for you on their tax return.

  4. Your adjusted gross income (defined later) isn’t more than:

    1. $61,500 for 2016 ($62,000 for 2017) if your filing status is married filing jointly;

    2. $46,125 for 2016 ($46,500 for 2017) if your filing status is head of household (with qualifying person); or

    3. $30,750 for 2016 ($31,000 for 2017) if your filing status is single, married filing separately, or qualifying widow(er) with dependent child.



Full-time student.

You are a full-time student if, during some part of each of 5 calendar months (not necessarily consecutive) during the calendar year, you are either:

  • A full-time student at a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance; or

  • A student taking a full-time, on-farm training course given by either a school that has a regular teaching staff, course of study, and regularly enrolled body of students in attendance, or a state, county, or local government.

You are a full-time student if you are enrolled for the number of hours or courses the school considers to be full-time.



Adjusted gross income.

This is generally the amount on line 38 of your 2016 Form 1040 or line 22 of your 2016 Form 1040A. However, you must add to that amount any exclusion or deduction claimed for the year for:

  • Foreign earned income,

  • Foreign housing costs,

  • Income for bona fide residents of American Samoa, and

  • Income from Puerto Rico.



Eligible contributions.

These include:

  1. Contributions to a traditional or Roth IRA;

  2. Elective deferrals, including amounts designated as after-tax Roth contributions, to:

    1. A 401(k) plan (including a SIMPLE 401(k)),

    2. A section 403(b) annuity,

    3. An eligible deferred compensation plan of a state or local government (a governmental 457 plan),

    4. A SIMPLE IRA plan, or

    5. A salary reduction SEP; and

  3. Contributions to a section 501(c)(18) plan.

They also include voluntary after-tax employee contributions to a tax-qualified retirement plan or a section 403(b) annuity. For purposes of the credit, an employee contribution will be voluntary as long as it isn’t required as a condition of employment.



Reducing eligible contributions.

Reduce your eligible contributions (but not below zero) by the total distributions you received during the testing period (defined later) from any IRA, plan, or annuity included earlier under Eligible contributions. Also reduce your eligible contributions by any distribution from a Roth IRA that isn’t rolled over, even if the distribution isn’t taxable.

Do not reduce your eligible contributions by any of the following.

  1. The portion of any distribution which isn’t includible in income because it is a trustee-to-trustee transfer or a rollover distribution.

  2. Distributions that are taxable as the result of an in-plan rollover to your designated Roth account.

  3. Any distribution that is a return of a contribution to an IRA (including a Roth IRA) made during the year for which you claim the credit if:

    1. The distribution is made before the due date (including extensions) of your tax return for that year,

    2. You don’t take a deduction for the contribution, and

    3. The distribution includes any income attributable to the contribution.

  4. Loans from a qualified employer plan treated as a distribution.

  5. Distributions of excess contributions or deferrals (and income attributable to excess contributions and deferrals).

  6. Distributions of dividends paid on stock held by an employee stock ownership plan under section 404(k).

  7. Distributions from an eligible retirement plan that are converted or rolled over to a Roth IRA.

  8. Distributions from a military retirement plan.

  9. Distributions from an inherited IRA by a nonspousal beneficiary.



Distributions received by spouse.

Any distributions your spouse receives are treated as received by you if you file a joint return with your spouse both for the year of the distribution and for the year for which you claim the credit.



Testing period.

The testing period consists of:

  • The year in which you claim the credit,

  • The 2 years before the year in which you claim the credit, and

  • The period after the end of the year in which you claim the credit and before the due date of the return (including extensions) for filing your return for the year in which you claimed the credit.



Example.

You and your spouse filed joint returns in 2014 and 2015, and plan to do so in 2016 and 2017. You received a taxable distribution from a qualified plan in 2014 and a taxable distribution from an eligible section 457(b) deferred compensation plan in 2015. Your spouse received taxable distributions from a Roth IRA in 2016 and tax-free distributions from a Roth IRA in 2017 before April 18. You made eligible contributions to an IRA in 2016 and you otherwise qualify for this credit. You must reduce the amount of your qualifying contributions in 2016 by the total of the distributions you and your spouse received in 2014, 2015, 2016, and 2017.

Maximum eligible contributions.

After your contributions are reduced, the maximum annual contribution on which you can base the credit is $2,000 per person.



Effect on other credits.

The amount of this credit won’t change the amount of your refundable tax credits. A refundable tax credit, such as the earned income credit or the additional child tax credit, is an amount that you would receive as a refund even if you didn’t otherwise owe any taxes.



Maximum credit.

This is a nonrefundable credit. The amount of the credit in any year can’t be more than the amount of tax that you would otherwise pay (not counting any refundable credits or the adoption credit) in any year. If your tax liability is reduced to zero because of other nonrefundable credits, such as the education credits, then you won’t be entitled to this credit.



How to figure and report the credit.

The amount of the credit you can get is based on the contributions you make and your credit rate. The credit rate can be as low as 10% or as high as 50%. Your credit rate depends on your income and your filing status. See Form 8880, Credit for Qualified Retirement Savings Contributions, to determine your credit rate.

The maximum contribution taken into account is $2,000 per person. On a joint return, up to $2,000 is taken into account for each spouse.

Figure the credit on Form 8880. Report the credit on line 51 of your 2016 Form 1040 or line 34 of your 2016 Form 1040A, and attach Form 8880 to your return.



11. How To Get Tax Help

If you have questions about a tax issue, need help preparing your tax return, or want to download free publications, forms, or instructions, go to IRS.gov and find resources that can help you right away.

Preparing and filing your tax return.

Find free options to prepare and file your return on IRS.gov or in your local community if you qualify.

The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $54,000 or less, persons with disabilities, the elderly, and limited-English-speaking taxpayers who need help preparing their own tax returns. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors.

You can go to IRS.gov and click on the Filing tab to see your options for preparing and filing your return which include the following.

  • Free File. Go to IRS.gov/freefile. See if you qualify to use brand-name software to prepare and e-file your federal tax return for free.

  • VITA. Go to IRS.gov/vita, download the free IRS2Go app, or call 1-800-906-9887 to find the nearest VITA location for free tax preparation.

  • TCE. Go to IRS.gov/tce, download the free IRS2Go app, or call 1-888-227-7669 to find the nearest TCE location for free tax preparation.



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Getting answers to your tax law questions. On IRS.gov, get answers to your tax questions anytime, anywhere.

  • Go to IRS.gov/help or IRS.gov/letushelp pages for a variety of tools that will help you get answers to some of the most common tax questions.

  • Go to IRS.gov/ita for the Interactive Tax Assistant, a tool that will ask you questions on a number of tax law topics and provide answers. You can print the entire interview and the final response for your records.

  • Go to IRS.gov/pub17 to get Pub. 17, Your Federal Income Tax for Individuals, which features details on tax-saving opportunities, 2016 tax changes, and thousands of interactive links to help you find answers to your questions. View it online in HTML or as a PDF or, better yet, download it to your mobile device to enjoy eBook features.

  • You may also be able to access tax law information in your electronic filing software.

Getting tax forms and publications.

Go to IRS.gov/forms to view, download, or print all of the forms and publications you may need. You can also download and view popular tax publications and instructions (including the 1040 instructions) on mobile devices as an eBook at no charge. Or, you can go to IRS.gov/orderforms to place an order and have forms mailed to you within 10 business days.



Using direct deposit.

The fastest way to receive a tax refund is to combine direct deposit and IRS e-file. Direct deposit securely and electronically transfers your refund directly into your financial account. Eight in 10 taxpayers use direct deposit to receive their refund. IRS issues more than 90% of refunds in less than 21 days.



Getting a transcript or copy of a return.

The quickest way to get a copy of your tax transcript is to go to IRS.gov/transcripts. Click on either "Get Transcript Online" or "Get Transcript by Mail" to order a copy of your transcript. If you prefer, you can:

  • Order your transcript by calling 1-800-908-9946.

  • Mail Form 4506-T or Form 4506T-EZ (both available on IRS.gov).



Using online tools to help prepare your return.

Go to IRS.gov/tools for the following.



Resolving tax-related identity theft issues.

  • The IRS doesn’t initiate contact with taxpayers by email or telephone to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

  • Go to IRS.gov/idprotection for information and videos.

  • If your SSN has been lost or stolen or you suspect you are a victim of tax-related identity theft, visit IRS.gov/id to learn what steps you should take.



Checking on the status of your refund.

  • Go to IRS.gov/refunds.

  • Due to changes in the law, the IRS can’t issue refunds before February 15, 2017, for returns that claim the EIC or the ACTC. This applies to the entire refund, not just the portion associated with these credits.

  • Download the official IRS2Go app to your mobile device to check your refund status.

  • Call the automated refund hotline at 1-800-829-1954.



Making a tax payment.

The IRS uses the latest encryption technology to ensure your electronic payments are safe and secure. You can make electronic payments online, by phone, and from a mobile device using the IRS2Go app. Paying electronically is quick, easy, and faster than mailing in a check or money order. Go to IRS.gov/payments to make a payment using any of the following options.

  • IRS Direct Pay: Pay your individual tax bill or estimated tax payment directly from your checking or savings account at no cost to you.

  • Debit or credit card: Choose an approved payment processor to pay online, by phone, and by mobile device.

  • Electronic Funds Withdrawal: Offered only when filing your federal taxes using tax preparation software or through a tax professional.

  • Electronic Federal Tax Payment System: Best option for businesses. Enrollment is required.

  • Check or money order: Mail your payment to the address listed on the notice or instructions.

  • Cash: If cash is your only option, you may be able to pay your taxes at a participating retail store.



What if I can’t pay now?

Go to IRS.gov/payments for more information about your options.

  • Apply for an online payment agreement (IRS.gov/opa) to meet your tax obligation in monthly installments if you can’t pay your taxes in full today. Once you complete the online process, you will receive immediate notification of whether your agreement has been approved.

  • Use the Offer in Compromise Pre-Qualifier (IRS.gov/oic) to see if you can settle your tax debt for less than the full amount you owe.



Checking the status of an amended return.

Go to IRS.gov and click on Where’s My Amended Return? (IRS.gov/wmar) under the "Tools" bar to track the status of Form 1040X amended returns. Please note that it can take up to 3 weeks from the date you mailed your amended return for it show up in our system and processing it can take up to 16 weeks.



Understanding an IRS notice or letter.

Go to IRS.gov/notices to find additional information about responding to an IRS notice or letter.



Contacting your local IRS office.

Keep in mind, many questions can be resolved on IRS.gov without visiting an IRS Tax Assistance Center (TAC). Go to IRS.gov/letushelp for the topics people ask about most. If you still need help, IRS TACs provide tax help when a tax issue can’t be handled online or by phone. All TACs now provide service by appointment so you’ll know in advance that you can get the service you need without waiting. Before you visit, go to IRS.gov/taclocator to find the nearest TAC, check hours, available services, and appointment options. Or, on the IRS2Go app, under the Stay Connected tab, choose the Contact Us option and click on "Local Offices."



Watching IRS videos.

The IRS Video portal (IRSvideos.gov) contains video and audio presentations for individuals, small businesses, and tax professionals.



Getting tax information in other languages.

For taxpayers whose native language isn’t English, we have the following resources available. Taxpayers can find information on IRS.gov in the following languages.

The IRS TACs provide over-the-phone interpreter service in over 170 languages, and the service is available free to taxpayers.



The Taxpayer Advocate Service Is Here To Help You

What is the Taxpayer Advocate Service?

Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.

What Can the Taxpayer Advocate Service Do For You?

We can help you resolve problems that you can’t resolve with the IRS. And our service is free. If you qualify for our assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:

  • Your problem is causing financial difficulty for you, your family, or your business;

  • You face (or your business is facing) an immediate threat of adverse action; or

  • You’ve tried repeatedly to contact the IRS but no one has responded, or the IRS hasn’t responded by the date promised.

How Can You Reach Us?

We have offices in every state, the District of Columbia, and Puerto Rico. Your local advocate’s number is in your local directory and at taxpayeradvocate.irs.gov. You can also call us at 1-877-777-4778.

How Can You Learn About Your Taxpayer Rights?

The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Our Tax Toolkit at taxpayeradvocate.irs.gov can help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.

How Else Does the Taxpayer Advocate Service Help Taxpayers?

TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to us at IRS.gov/sams.

Low Income Taxpayer Clinics

Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. To find a clinic near you, visit IRS.gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List.

Publication 571 - Additional Material

Index

Symbols

403(b) account, What Is a 403(b) Plan?
403(b) plans
Basics, 403(b) Plan Basics
Benefits, What Are the Benefits of Contributing to a 403(b) Plan?
Participation, Who Can Participate in a 403(b) Plan?
Self-employed ministers, Who Can Set Up a 403(b) Account?
What is a 403(b) plan?, What Is a 403(b) Plan?
Who can set up a 403(b) account?, Who Can Set Up a 403(b) Account?

A

After-tax contributions, How Can Contributions Be Made to My 403(b) Account?
Assistance (see Tax help)

E

Elective deferrals, How Can Contributions Be Made to My 403(b) Account?, Elective deferrals only.
Eligible employees, Eligible employees., Church employee.
Employer's annual work period, Employer's annual work period.
Excess contributions, Excess Contributions
Correcting, What Happens If I Have Excess Contributions?
Determining, How Do I Know If I Have Excess Contributions?
Excess amounts, Excess Annual Addition
Excess deferrals, Excess Annual Addition
Excess elective deferral, Excess Elective Deferral
Excise tax, Excise Tax
Excise tax
Excess contributions, Excise Tax
Reporting requirement, Reporting requirement.

F

Free tax services, How To Get Tax Help
Full-time or part-time, Years of Service

G

Gift tax, Gift Tax

H

Help (see Tax help)

I

Incidental life insurance, Cost of Incidental Life Insurance
Includible compensation, Includible Compensation
403(b) plan, Changes to Includible Compensation
Figuring, Figuring Includible Compensation for Your Most Recent Year of Service
Foreign missionaries, Changes to Includible Compensation
Incidental life insurance, Cost of Incidental Life Insurance
Self-employed ministers, Changes to Includible Compensation
Includible compensation for your most recent year of service
Definition, Definition.

L

Limit on annual additions, Limit on Annual Additions
Limit on elective deferrals, Limit on Elective Deferrals
15-year rule, 15-Year Rule
Figuring, Figuring the Limit on Elective Deferrals
General limit, General Limit

M

MAC (see Maximum amount contributable)
Maximum amount contributable, Maximum Amount Contributable (MAC)
Components, Components of Your MAC
How to figure MAC, How Do I Figure My MAC?
When to figure MAC, When Should I Figure My MAC?
Minimum required distributions, Minimum Required Distributions
Ministers, Ministers., Ministers and Church Employees
Missing children, Reminder
More information (see Tax help)
Most recent year of service, Most Recent Year of Service
Most recent year of service, figuring, Figuring Your Most Recent Year of Service

Q

Qualified domestic relations order, Qualified domestic relations order.

R

Reporting Contributions
Self-employed ministers, Self-employed ministers.
Reporting contributions
Chaplains, Chaplains.
Required distributions, Minimum Required Distributions
Retirement savings contributions credit, What's New for 2016, What’s New for 2017, Retirement Savings Contributions Credit (Saver's Credit)
Rollovers, Distributions and Rollovers, Tax-Free Rollovers
Roth contribution program, Roth contribution program.

V

Voluntary deductible contributions, Voluntary deductible contributions.

W

What is a 403(b) plan?, What Is a 403(b) Plan?

Y

Years of service, Years of Service
Church employees, Church employee., Changes to Years of Service
Definition, Definition
Employer's annual work period, Employer's annual work period.
Full year of service, Full year of service.
Full-time employee for the full year, Full-Time Employee for the Full Year
Full-time for part of the year, Full-time for part of the year.
Other than full-time for the full year, Other Than Full-Time for the Full Year
Part-time for the full year, Part-time for the full year.
Part-time for the part of the year, Part-time for part of the year.
Self-employed minister, Changes to Years of Service
Total years of service, Total years of service.