Important Changes for 2002

Maximum amount contributable (MAC). For tax years beginning after 2001, your MAC is the lesser of the limit on annual additions, or the limit on elective deferrals. See chapter 9.

Repeal of the maximum exclusion allowance (MEA). For tax years beginning after 2001, you will not need to figure your MEA to determine the maximum amount that can be contributed to your 403(b) account (your MAC). See chapter 9.

Repeal of the minimum exclusion allowance for church employees. For tax years beginning after 2001, church employees can no longer use the minimum exclusion allowance to figure the maximum amount that can be contributed to a 403(b) account. See chapter 9.

Repeal of the alternative limits on annual additions. For tax years beginning after 2001, the year of separation from service limit, the any year limit, and the overall limit can no longer be used to figure the limit on annual additions. See chapter 9.

Repeal of the coordination rules between 403(b) plans and 457 plans. For tax years beginning after 2001, in the year you contribute to both a 403(b) plan and a 457 plan, you do not reduce the maximum deferral limit of the 457 plan by the amount of contributions made to your 403(b) account. If you contribute to a 457 plan in 2002, see your plan administrator for contribution limits. See chapter 9.

Increase in the limit on annual additions. For tax years beginning after 2001, the limit on annual additions under the general rule is the lesser of $40,000 or 100% of your includible compensation for your most recent year of service. This is an increase from the lesser of $35,000, or 25% of your compensation for the limitation year. See chapter 9.

Increase in the limit on elective deferrals. For 2002, the limit on elective deferrals has been increased from $10,500 to $11,000. See chapter 9.

Includible compensation used to determine your limit on annual additions. For tax years beginning after 2001, when figuring the limit on annual additions you will use includible compensation for your most recent year of service and not your compensation for the limitation year. See chapter 9.

Includible compensation after a termination from service. For tax years beginning after 2001, your includible compensation for your most recent year of service will not include amounts received from a former employer after the fifth year following the year in which your employment is terminated. See chapter 9.

Includible compensation for foreign missionaries. For tax years beginning after 2001, if you are a foreign missionary, your includible compensation does not include contributions made by the church during the year to your 403(b) account. See chapter 9.

As this publication was being prepared for print, Congress was considering legislation that would allow foreign missionaries to include contributions made by the church during the year to your 403(b) account in includible compensation.

Catch-up contributions for persons age 50 or over. If you are age 50 or over, you may be permitted to make additional catch-up contributions, of up to $1,000 to your 403(b) plan for 2002. See chapter 10.

Credit for elective deferrals. For tax years beginning after 2001, you may be eligible to take a percentage of your actual elective deferrals as a credit. For more information, see Publication 553, Highlights of 2001 Tax Changes.

Exception to rollover rules. For distributions after 2001, the IRS may waive the 60-day roll- over 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 the individual. See chapter 12.

Direct trustee-to-trustee transfers. If you make a direct trustee-to-trustee transfer after 2001 from your governmental 403(b) account to a defined benefit governmental plan, it may not be included in your gross income. For more information, see chapter 12.

Rollover options. For distributions after 2001, you can roll over, tax free, money and other property that would otherwise be taxable from an eligible retirement plan to a 403(b) plan. For more information, see Publication 575.

Additionally, you can roll over, tax free, money and other property that would otherwise be taxable from a 403(b) plan to an eligible retirement plan. For more information see chapter 12.

Rollovers by the surviving spouse. If you are the surviving spouse of a 403(b) plan participant, you can roll over distributions made after 2001 from your spouse's 403(b) plan to an eligible retirement plan. For more information see chapter 12.

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