Figuring MEA for 2001

You need to figure MEA separately for each employer who contributed to a 403(b) account for your benefit. When figuring your MEA, do not include amounts contributed, compensation, or years of service for one employer with those for another employer. Special rules apply to church employees, as explained in chapter 7.

The following example shows how to figure MEA. The facts presented in this example will also be used in examples in chapters 4 and 5.

Example

Jerry has been working full time for a local hospital since the beginning of July 1997. Except for 1997, when he worked for one half of the hospital's annual work period, Jerry has worked for the hospital's entire annual work period. Jerry's includible wages (box 1 of Form W-2) from the hospital are shown in the following chart.

Jerry's employer has set up a 403(b) account for him. In this account, Jerry has chosen to invest 8% of his salary each year in mutual funds through payroll reductions. For 2001, this is $2,800. Jerry is not using an alternative limit on annual additions.

Figure Jerry's years of service. The first thing Jerry will need to do is figure his years of service. In 1997, Jerry worked 1/2 of the year for his employer. For the years 1998 through 2001, Jerry has been a full-time employee for each of the hospital's entire annual work periods.

Jerry's years of service at the end of 2001 total 4.5 years.

Figure Jerry's includible compensation. The second thing for Jerry to figure is his includible compensation for his most recent year of service. Before he can do this, he must identify his most recent year of service. Jerry is a full-time employee who works the entire annual work period. Jerry's most recent year of service is 2001. Jerry figures his includible compensation as shown in Table 3-6.

Figure Jerry's amounts previously excludable. Jerry's next step is to figure his amounts previously excludable. The 8% contributions made through a salary reduction agreement equal $9,200.

Jerry's MEA. Using the figures for years of service, includible compensation, and amounts previously excludable, Jerry can now use Worksheet A to figure his MEA as shown in Table 3-7.

Figuring Jerry's MAC

Jerry's MEA for 2001 is $24,820. However, this is not the maximum amount that can be contributed to his 403(b) account. To determine his MAC, Jerry will need to figure his limit on annual additions (chapter 4) and his limit on elective deferrals (chapter 5).

Table 3.6 and Table 3.7 Table for Includible compensation and Maximum exclusion allowance

Previous| First | Next

Publication Index | IRS-Forms Main | Home