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This subsection, which was also significantly
modified by recent pension reform legislation (EGTRRA), prescribes
the maximum annual additions (i.e., contributions) that may be made
to any one participant during a given year under a defined contribution
plan such as a 401(k) plan. The pension reform changes to this subsection,
which become effective January 1, 2002, are fundamental to the creation
of the new Individual(k) plan.
Prior to Pension Reform
IRC Sec. 415(c) Before Pension Reform
(c) Limitation for defined contribution plans
(1) In general
Contributions and other additions with respect to a participant
exceed the limitation of this subsection if, when expressed as
an annual addition (within the meaning of paragraph (2)) to the
participant's account, such annual addition is greater than the
lesser of -
(A) $30,000, or
(B) 25 percent of the participant's compensation.
(2) Annual addition
For purposes of paragraph (1), the term ''annual addition'' means
the sum of any year of -
(A) employer contributions,
(B) the employee contributions, and
(C) forfeitures.
For the purposes of this paragraph, employee contributions under
subparagraph (B) are determined without regard to any rollover
contributions (as defined in sections 402(c), 403(a)(4), 403(b)(8),
and 408(d)(3)) without regard to employee contributions to a
simplified employee pension which are excludable from gross
income under section 408(k)(6). Subparagraph (B) of paragraph
(1) shall not apply to any contribution for medical benefits
(within the meaning of section 419A(f)(2)) after separation
from service which is treated as an annual addition.
(3) Participant's compensation
For purposes of paragraph (1) -
(A) In general
The term ''participant's compensation'' means the compensation
of the participant from the employer for the year.
(B) Special rule for self-employed individuals
In the case of an employee within the meaning of section 401(c)(1),
subparagraph (A) shall be applied by substituting ''the participant's
earned income (within the meaning of section 401(c)(2) but determined
without regard to any exclusion under section 911)'' for ''compensation
of the participant from the employer''.
(C) Special rules for permanent and total
disability
In the case of a participant in any defined contribution plan
-
(ii) who is permanently and totally disabled
(as defined in section 22(e)(3)),
(iii) who is not a highly compensated employee
(within the meaning of section 414(q)), and (iii) with respect
to whom the employer elects, at such time and in such manner
as the Secretary may prescribe, to have this subparagraph
apply, the term ''participant's compensation'' means the compensation
the participant would have received for the year if the participant
was paid at the rate of compensation paid immediately before
becoming permanently and totally disabled.
This subparagraph shall apply only if contributions made with
respect to amounts treated as compensation under this subparagraph
are nonforfeitable when made. If a defined contribution plan
provides for the continuation of contributions on behalf of
all participants described in clause (i) for a fixed or determinable
period, this subparagraph shall be applied without regard
to clauses (ii) and (iii).
(D) Certain deferrals included
The term ''participant's compensation'' shall include -
(i) any elective deferral (as defined in section
402(g)(3)), and
(ii) any amount which is contributed or deferred
by the employer at the election of the employee and which is not
includible in the gross income of the employee by reason of section
125 or 457.
(4) Special election for section 403(b) contracts
purchased by educational organizations, hospitals,, [1] home
health service agencies, and certain churches, etc.
(A) In the case of amounts contributed for
an annuity contract described in section 403(b) for the year
in which occurs a participant's separation from the service
with an educational organization, a hospital, a home health
service agency, a health and welfare service agency, or a
church, convention or association of churches, or an organization
described in section 414(e)(3)(B)(ii), at the election of
the participant there is substituted for the amount specified
in paragraph (1)(B) the amount of the exclusion allowance
which would be determined under section 403(b)(2) (without
regard to this section) for the participant's taxable year
in which such separation occurs if the participant's years
of service were computed only by taking into account his service
for the employer (as determined for purposes of section 403(b)(2))
during the period of years (not exceeding ten) ending on the
date of such separation.
(B) In the case of amounts contributed for
an annuity contract described in section 403(b) for any year
in the case of a participant who is an employee of an educational
organization, a hospital, a home health service agency, a
health and welfare service agency, or a church, convention
or association of churches, or an organization described in
section 414(e)(3)(B)(ii), at the election of the participant
there is substituted for the amount specified in paragraph
(1)(B) the least of -
(i) 25 percent of the participant's includible
compensation (as defined in section 403(b)(3)) plus $4,000,
(ii) the amount of the exclusion allowance
determined for the year under section 403(b)(2), or
(iii) $15,000.
(C) In the case of amounts contributed for
an annuity contract described in section 403(b) for any year
for a participant who is an employee of an educational organization,
a hospital, a home health service agency, a health and welfare
service agency, or a church, convention or association of
churches, or an organization described in section 414(e)(3)(B)(ii),
at the election of the participant the provisions of section
403(b)(2)(A) shall not apply.
(D)
(i) The provisions of this paragraph apply
only if the participant elects its application at the time
and in the manner provided under regulations prescribed
by the Secretary. Not more than one election may be made
under subparagraph (A) by any participant. A participant
who elects to have the provisions of subparagraph (A), (B),
or (C) of this paragraph apply to him may not elect to have
any other subparagraph of this paragraph apply to him. Any
election made under this paragraph is irrevocable.
(ii) For purposes of this paragraph the
term ''educational organization'' means an educational organization
described in section 170(b)(1)(A)(ii).
(iii) For purposes of this paragraph the
term ''home health service agency'' means an organization
described in subsection 501(c)(3) which is exempt from tax
under section 501(a) and which has been determined by the
Secretary of Health, Education, and Welfare to be a home
health agency (as defined in section 1861(o) of the Social
Security Act).
(iv) For purposes of this paragraph, the
terms ''church'' and ''convention or association of churches''
have the same meaning as when used in section 414(e).
(5) Repealed. Pub. L. 97-248, title II, Sec.
238(d)(5), Sept. 3,
1982, 96 Stat. 513)
(6) Special rule for employee stock ownership
plans
If no more than one-third of the employer contributions to an
employee stock ownership plan (as described in section 4975(e)(7))
for a year which are deductible under paragraph (9) of section
404(a) are allocated to highly compensated employees (within
the meaning of section 414(q)), the limitations imposed by this
section shall not apply to -
(A) forfeitures of employer securities (within
the meaning of section 409) under such an employee stock ownership
plan if such securities were acquired with the proceeds of
a loan (as described in section 404(a)(9)(A)), or
(B) employer contributions to such an employee
stock ownership plan which are deductible under section 404(a)(9)(B)
and charged against the participant's account. The amount
of any qualified gratuitous transfer (as defined in section
664(g)(1)) allocated to a participant for any limitation year
shall not exceed the limitations imposed by this section,
but such amount shall not be taken into account in determining
whether any other amount exceeds the limitations imposed by
this section.
(7) Certain contributions by church plans
not treated as exceeding limits
(A) Alternative exclusion allowance
Any contribution or addition with respect to any participant,
when expressed as an annual addition, which is allocable to
the application of section 403(b)(2)(D) to such participant
for such year, shall be treated as not exceeding the limitations
of paragraph (1).
(B) Contributions not in excess of $40,000
($10,000 per year)
(i) In general
Notwithstanding any other provision of this subsection,
at the election of a participant who is an employee of a
church, a convention or association of churches, including
an organization described in section 414(e)(3)(B)(ii), contributions
and other additions for an annuity contract or retirement
income account described in section 403(b) with respect
to such participant, when expressed as an annual addition
to such participant's account, shall be treated as not exceeding
the limitation of paragraph (1) if such annual addition
is not in excess of $10,000.
(ii) $40,000 aggregate limitation
The total amount of additions with respect to any participant
which may be taken into account for purposes of this subparagraph
for all years may not exceed $40,000.
(iii) No election if paragraph (4)(A)
election made
No election may be made under this subparagraph for any
year if an election is made under paragraph (4)(A) for such
year.
(C) Annual addition
For purposes of this paragraph, the term ''annual addition''
has the meaning given such term by paragraph (2).
©2007 Ascensus, Inc., Brainerd, MN
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