(1) IN GENERAL.-
(A) LIMITATION.-Notwithstanding subsections
(e)(3) and (h)(1)(B), the elective deferrals of any individual
for any taxable year shall be included in such individual's
gross income to the extent the amount of such deferrals for
the taxable year exceeds the applicable dollar amount.
(B) APPLICABLE DOLLAR AMOUNT.-For purposes
of subparagraph (A), the applicable dollar amount shall be the
amount determined in accordance with the following table:
For taxable years The applicable beginning
in dollar amount: calendar year:
2002 .............................................................................
$11,000
2003 .............................................................................
$12,000
2004 .............................................................................
$13,000
2005 .............................................................................
$14,000
2006 or thereafter ......................................................
$15,000
(2) Distribution of excess deferrals
(A) In general
If any amount (hereinafter in this paragraph referred to as
''excess deferrals'') is included in the gross income of an
individual under paragraph (1) (or would be included but for
the last sentence thereof) for any taxable year -
(i) not later than the 1st March 1 following
the close of the taxable year, the individual may allocate
the amount of such excess deferrals among the plans under
which the deferrals were made and may notify each such plan
of the portion allocated to it, and
(ii) not later than the 1st April 15 following
the close of the taxable year, each such plan may distribute
to the individual the amount allocated to it under clause
(i) (and any income allocable to such amount). The distribution
described in clause (ii) may be made notwithstanding any other
provision of law. The preceding sentence shall not apply the
portion of such excess as does not exceed the designated Roth
contributions of the individual for the taxable year.
(B) Treatment of distribution under section
401(k)
Except to the extent provided under rules prescribed by the
Secretary, notwithstanding the distribution of any portion of
an excess deferral from a plan under subparagraph (A)(ii), such
portion shall, for purposes of applying section 401(k)(3)(A)(ii),
be treated as an employer contribution.
(C) Taxation of distribution
In the case of a distribution to which subparagraph (A) applies
-
(i) except as provided in clause (ii), such
distribution shall not be included in gross income, and
(ii) any income on the excess deferral shall,
for purposes of this chapter, be treated as earned and received
in the taxable year in which such income is distributed. No
tax shall be imposed under section 72(t) on any distribution
described in the preceding sentence.
(D) Partial distributions
If a plan distributes only a portion of any excess deferral
and income allocable thereto, such portion shall be treated
as having been distributed ratably from the excess deferral
and the income.
(3) Elective deferrals
For purposes of this subsection, the term ''elective deferrals''
means, with respect to any taxable year, the sum of -
(A) any employer contribution under a qualified
cash or deferred arrangement (as defined in section 401(k))
to the extent not includible in gross income for the taxable
year under subsection (e)(3) (determined without regard to this
subsection),
(B) any employer contribution to the extent
not includible in gross income for the taxable year under subsection
(h)(1)(B) (determined without regard to this subsection),
(C) any employer contribution to purchase
an annuity contract under section 403(b) under a salary reduction
agreement (within the meaning of section 3121(a)(5)(D)), and
(D) any elective employer contribution under
section 408(p)(2)(A)(i).
An employer contribution shall not be treated as an elective
deferral described in subparagraph (C) if under the salary reduction
agreement such contribution is made pursuant to a one-time irrevocable
election made by the employee at the time of initial eligibility
to participate in the agreement or is made pursuant to a similar
arrangement involving a one-time irrevocable election specified
in regulations.
(4) COST-OF-LIVING ADJUSTMENT.-In the case of
taxable years beginning after December 31, 2006, the Secretary
shall adjust the $15,000 amount under paragraph (1)(B) at the
same time and in the same manner as under section 415(d), except
that the base period shall be the calendar quarter beginning July
1, 2005, and any increase 18 under this paragraph which is not
a multiple of $500 shall be rounded to the next lowest multiple
of $500.
(5) Disregard of community property laws
This subsection shall be applied without regard to community property
laws.
(6) Coordination with section 72
For purposes of applying section 72, any amount includible in
gross income for any taxable year under this subsection but which
is not distributed from the plan during such taxable year shall
not be treated as investment in the contract.
(7) Special rule for certain organizations
(A) In general
In the case of a qualified employee of a qualified organization,
with respect to employer contributions described in paragraph
(3)(C) made by such organization, the limitation of paragraph
(1) for any taxable year shall be increased by whichever of
the following is the least:
(i) $3,000,
(ii) $15,000 reduced by amounts not included
in gross income for prior taxable years by reason of this
paragraph, or
(iii) the excess of $5,000 multiplied by
the number of years of service of the employee with the qualified
organization over the employer contributions described in
paragraph (3) made by the organization on behalf of such employee
for prior taxable years (determined in the manner prescribed
by the Secretary).
(B) Qualified organization
For purposes of this paragraph, the term ''qualified organization''
means any educational organization, hospital, home health service
agency, health and welfare service agency, church, or convention
or association of churches. Such term includes any organization
described in section 414(e)(3)(B)(ii). Terms used in this subparagraph
shall have the same meaning as when used in section 415(c)(4).
as in effect before the enactment of the Economic Growth and
Tax Relief Reconciliation Act of 2001''. 8
(C) Qualified employee
For purposes of this paragraph, the term ''qualified employee''
means any employee who has completed 15 years of service with
the qualified organization.
(D) Years of service
For purposes of this paragraph, the term ''years of service''
has the meaning given such term by section 403(b).
(8) Matching contributions on behalf of self-employed
individuals not treated as elective employer contributions
Except as provided in section 401(k)(3)(D)(ii), any matching contribution
described in section 401(m)(4)(A) which is made on behalf of a
self-employed individual (as defined in section 401(c)) shall
not be treated as an elective employer contribution under a qualified
cash or deferred arrangement (as defined in section 401(k)) for
purposes of this title.
