Chapter 6
Alternative Limits on Annual Additions

This chapter applies only to contributions made in 2001. For years beginning after 2001, the alternative limits on annual additions have been repealed. For information on figuring your limit on annual additions for 2002, see chapter 9.

Certain employees can choose to increase their MAC by electing an alternative limit on annual additions. There are three alternative limits.

• The year of separation from service limit.
• The any year limit.
• The overall limit.

This chapter will discuss the following topics.

• Who is eligible to use an alternative limit.
• Each of the alternative limits.
• How to elect an alternative limit.

The general limit on annual additions is discussed in chapter 4.

Effect of election. Generally, the election to use either the any year limit or the year of separation from service limit allows you to exclude from gross income a larger amount of employer contributions than would have been allowed under the general rule that limits employer contributions to 25% of your compensation. If you elect to use the overall limit, you may be able to exclude a larger amount because you can disregard the MEA that would otherwise apply.

Excess contributions. If employer contributions were included in your income for a tax year because they exceeded any of these alternative limits for that year, the excess reduces the amount of your MEA for later years, even though the excess has already been included in your income.

• Who is Eligible to Use an Alternative Limit
• Year of Separation From Service Limit
• Any Year Limit
• Overall Limit
• How To Elect an Alternative Limit

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