The maximum amount that could be contributed is determined using either the general limit or the catch-up limit.

General Limit

Under the general limit, the most that could be contributed to your 403(b) account and your 457 account combined is the lesser of the following amounts:

• $8,500, or
• One-third of your includible compensation.

This limit is reduced by elective deferrals under a 401(k) plan, SEP plan, or a SIMPLE IRA.

Includible Compensation

Includible compensation under a 457 plan is not the same as includible compensation under a 403(b) plan.

Generally, includible compensation for a 457 plan is the taxable wages on your Form W-2 from the employer who set up the 457 account on your behalf.

Contributions to a 403(b) plan, 457 plan, 401(k) plan, or a SEP plan, made in the current year, are not part of your includible compensation.

Example. Sylvia is employed by a local school district. In 2001, her compensation was $24,000. Sylvia had $6,000 contributed to her 457 account through a salary reduction agreement. Her includible compensation is $18,000 ($24,000 - $6,000).

Catch-Up Limit

Under the catch-up limit, contributions for the last 3 years prior to your employer's normal retirement age can be more than the general limit.

Normal retirement age. Your employer's normal retirement age is generally set by the plan. If no normal retirement age has been specified in the plan, then your normal retirement age is the latest of:

• Age 65, or
• The latest age specified in your employer's basic pension plan.

Maximum contribution. Under the catch-up limit, the most that can be contributed to your 457 account for a year is the lesser of:

1. $15,000, or
2. The sum of the following two amounts:
1. The general limit for the year for which you are figuring the catch-up limit, plus
2. The unused portion of the general limit in prior years.

Add the unused portion of the general limit only for prior years in which all three of the following requirements were met.

• The year began after 1978.
• You were eligible to participate in the 457 plan during the year.
• The general limit applied to contributions made to your account for the year.

403(b) contributions only. If you were eligible to participate in both a 457 plan and a 403(b) plan during 2001 and you chose to contribute only to a 403(b) plan, contributions to your 403(b) account are taken into consideration in applying the 457 catch-up limit.

If, for each year that you were eligible to participate in both a 457 plan and a 403(b) plan, you elected to defer the maximum amount, through elective deferrals to your 403(b) account, you cannot use the catch-up limit. However, if you did not defer the maximum each year, you may have unused contributions and therefore be eligible to use the catch-up limit.

Example. Although eligible to participate in both a 457 plan and a 403(b) plan, Jessica has only contributed to a 403(b) plan and has deferred the maximum amount each year. Jessica is now within 3 years of her employer's normal retirement age and wants to take advantage of the 457 catch-up limit and defer $15,000. Jessica has contributed the maximum amount allowable under the 403(b) plan so she has no unused contributions and cannot use the catch-up limit.

However, if Jessica had deferred nothing under the 457 plan and $2,500 under the 403(b) plan, she would have unused contributions, and would therefore be eligible to use the 457 catch-up limit.

Previous | First | Next

Publication Index | 2001 Tax Help Archives | Tax Help Archives | Home