Publication 571: Tax-Sheltered Annuity Plans (403(b) Plans); Maximum Amount Contributable (MAC)

This is archived information that pertains only to the 2003 Tax Year. If you
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Table of Contents

Throughout this publication, the limit on the amount that can be contributed to your 403(b) account for any year is referred to as your maximum amount contributable (MAC). This chapter:

Introduces the components of your MAC,
Tells you how to figure your MAC, and
Tells you when to figure your MAC.

Components of Your MAC

Generally, before you can determine your MAC, you must first figure the components of your MAC. The components of your MAC are:

The limit on annual additions (chapter 3), and
The limit on elective deferrals (chapter 4).

Depending upon the type of contributions made to your 403(b) account, only one of the limits may apply to you.

Which limit applies.

Whether you must apply one or both of the limits depends on the type of contributions made to your 403(b) account during the year.

Elective deferrals only.

If the only contributions made to your 403(b) account during the year were elective deferrals made under a salary reduction agreement, you will need to figure both of the limits. Your MAC is the lesser of the two limits.

Nonelective contributions only.

If the only contributions made to your 403(b) account during the year were nonelective contributions (employer contributions not made under a salary reduction agreement), you will only need to figure the limit on annual additions. Your MAC is the limit on annual additions.

Elective deferrals and nonelective contributions.

If the contributions made to your 403(b) account were a combination of both elective deferrals made under a salary reduction agreement and nonelective contributions (employer contributions not made under a salary reduction agreement), you will need to figure both the limits. Your MAC is the limit on the annual additions.

You need to figure the limit on elective deferrals to determine if you have excess elective deferrals, which are explained in chapter 7.

At the beginning of 2004, you should refigure your 2003 MAC based on your actual compensation for 2003. This will allow you to determine if the amount that has been contributed to your 403(b) account for 2003 has exceeded the allowable limits. In some cases, this will allow you to avoid penalties and additional taxes. See chapter 7.

Generally, you should figure your MAC for the current year at the beginning of each tax year using a conservative estimate of your compensation. If your compensation changes during the year, you should refigure your MAC based on a revised conservative estimate. By doing this, you will be able to determine if contributions to your 403(b) account can be increased or should be decreased for the year.