Publication 571 (1-2016) TAX-SHELTERED ANNUITY PLANS (403(B) PLANS)

• Determine the maximum amount that can be contributed to your 403(b) account in 2016.

• Determine the maximum amount that could have been contributed to your 403(b) account in 2015.

• Identify excess contributions.

• Understand the basic rules for claiming the retirement savings contributions credit.

• Understand the basic rules for distributions and rollovers from 403(b) accounts.

• Distributions from 403(b) accounts. This is covered in

, Pension and Annuity Income.

• Rollovers. This is covered in Pub. 590, Individual Retirement Arrangements (IRAs).

•

Social Security and Other Information for Members of the Clergy and Religious Workers

• Publication 575 Pension and Annuity Income

• Publication 590-A Contributions to Individual Retirement Arrangements (IRAs)

• Publication 590-B Distributions from Individual Retirement Arrangements (IRAs)

•

Wage and Tax Statement

• Form 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

• Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts

• Form 5330 Return of Excise Taxes Related to Employee Benefit Plans

• Form 8880 Credit for Qualified Retirement Savings Contributions

• What is a 403(b) plan?

• What are the benefits of contributing to a 403(b) plan?

• Who can participate in a 403(b) plan?

• Who can set up a 403(b) account?

• How can contributions be made to my 403(b) account?

• Do I report contributions on my tax return?

• How much can be contributed to my 403(b) account?

• An annuity contract, which is a contract provided through an insurance company.

• A custodial account, which is an account invested in mutual funds.

• A retirement income account set up for church employees. Generally, retirement income accounts can invest in either annuities or mutual funds.

• The first benefit is that you do not pay income tax on allowable contributions until you begin making withdrawals from the plan, usually after you retire. Allowable contributions to a 403(b) plan are either excluded or deducted from your income. However, if your contributions are made to a Roth contribution program, this benefit does not apply. Instead, you pay income tax on the contributions to the plan but distributions from the plan (if certain requirements are met) are tax free.

• The second benefit is that earnings and gains on amounts in your 403(b) account are not taxed until you withdraw them. Earnings and gains on amounts in a Roth contribution program are not taxed if your withdrawals are qualified distributions. Otherwise, they are taxed when you withdraw them.

• The third benefit is that you may be eligible to take a credit for elective deferrals contributed to your 403(b) account. See chapter 10, Retirement Savings Contributions Credit (Saver's Credit).

• Employees of tax-exempt organizations established under section

. These organizations are usually referred to as section

organizations or simply 501(c)(3) organizations.

• Employees of public school systems who are involved in the day-to-day operations of a school.

• Employees of cooperative hospital service organizations.

• Civilian faculty and staff of the Uniformed Services University of the Health Sciences.

• Employees of public school systems organized by Indian tribal governments.

• Certain ministers (explained next).

1. Ministers employed by section

organizations.

2. Self-employed ministers. A self-employed minister is treated as employed by a tax-exempt organization that is a qualified employer.

3. Ministers (chaplains) who meet both of the following requirements.

1.

. These are contributions made under a salary reduction agreement. This agreement allows your employer to withhold money from your paycheck to be contributed directly into a 403(b) account for your benefit. Except for Roth contributions, you do not pay income tax on these contributions until you withdraw them from the account. If your contributions are Roth contributions, you pay taxes on your contributions but any qualified distributions from your Roth account are tax free.

2. Nonelective contributions. These are employer contributions that are not made under a salary reduction agreement. Nonelective contributions include matching contributions, discretionary contributions, and mandatory contributions made by your employer. You do not pay income tax on these contributions until you withdraw them from the account.

3. After-tax contributions. These are contributions (that are not Roth contributions) you make with funds that you must include in income on your tax return. A salary payment on which income tax has been withheld is a source of these contributions. If your plan allows you to make after-tax contributions, they are not excluded from income and you cannot deduct them on your tax return.

4. A combination of any of the three contribution types listed above.

• Introduces the components of your MAC,

• Tells you how to figure your MAC, and

• Tells you when to figure your MAC.

• The limit on annual additions (chapter 3), and

• The limit on elective deferrals (chapter 4).

• The limit on annual additions, or

• The limit on elective deferrals.

• $53,000 for 2015 and 2016, or

• 100% of your includible compensation for your most recent year of service.

• Your service during the year for which you are figuring the limit on annual additions.

• Your service during your preceding tax years until the total service equals 1 year of service or you have figured all of your service with the employer.

• Received from the employer who maintains your 403(b) account, and

• Must be included in your income.

• Elective deferrals (employer's contributions made on your behalf under a salary reduction agreement).

• Amounts contributed or deferred by your employer under a section 125 cafeteria plan.

• Amounts contributed or deferred, at the election of the employee, under an eligible section 457 nonqualified deferred compensation plan (state or local government or tax-exempt organization plan).

• Wages, salaries, and fees for personal services earned with the employer maintaining your 403(b) account.

• Income otherwise excluded under the foreign earned income exclusion.

• Pre-tax contributions (employer's contributions made on your behalf according to your election) to a qualified transportation fringe benefit plan.

1. Your employer's contributions to your 403(b) account.

2. Compensation earned while your employer was not an eligible employer.

3. Your employer's contributions to a qualified plan that:

4. The cost of incidental life insurance. See

later.

• The value of your life insurance contract, which is the amount payable upon your death.

• The cash value of your life insurance contract at the end of the tax year.

• Your age on your birthday nearest the beginning of the policy year.

• Your current life insurance protection under an ordinary retirement income life insurance policy, which is the amount payable upon your death minus the cash value of the contract at the end of the year.

• Time he will work in 2016 is 6/12 of a year.

• Time worked in 2015 is 4/12 of a year. All of this time will be used to determine Floyd's most recent year of service.

• Time worked in 2014 is 4/12 of a year. Floyd only needs 2 months of the 4 months he worked in 2014 to have enough time to total 1 full year. Because he needs only one-half of the actual time he worked, Floyd will use only one-half of his income earned during that period to calculate wages that will be used in figuring his includible compensation.

•

• Roth contribution programs;

• Section  

The maximum amount of contributions allowed under a Roth contribution program is your limit on elective deferrals, less your elective deferrals not designated as Roth contributions. For more information on the Roth contribution program, see Pub. 560, Retirement Plans for Small Business.

Excess elective deferrals. If the amount contributed is more than the allowable limit, you must include the excess that is not a Roth contribution in your gross income for the year contributed.

General Limit

Under the general limit on elective deferrals, the most that can be contributed to your 403(b) account through a salary reduction agreement is $18,000 for 2015 and 2016. This limit applies without regard to community property laws.

15-Year Rule

If you have at least 15 years of service with an educational organization (such as a public or private school), hospital, home health service agency, health and welfare service agency, church, or convention or association of churches (or associated organization) and it is allowed by the terms of the plan document, the limit on elective deferrals to your 403(b) account is increased by the least of:

If you qualify for the 15-year rule (sometimes referred to as the special section

catch-up or the years-of-service catch-up), your elective deferrals under this limit can be as high as $21,000 for 2015 and 2016.

To determine whether you have 15 years of service with your employer, see Years of Service next.

Years of Service

To determine if you are eligible for the increased limit on elective deferrals, you will first need to figure your years of service. How you figure your years of service depends on whether you were a full-time or a part-time employee, whether you worked for the full year or only part of the year, and whether you have worked for your employer for an entire year.

You must figure years of service for each year during which you worked for the employer who is maintaining your 403(b) account.

If more than one employer maintains a 403(b) account for you in the same year, you must figure years of service separately for each employer.

For purposes of the 15-year rule, years of service are calculated through the year for which the calculation is being made. For example, to determine the limit for 2015, you count years of service through 2015.

Definition

Your years of service are the total number of years you have worked as a full-time employee for the employer maintaining your 403(b) account as of the end of the year.

Figuring Your Years of Service

Take the following rules into account when figuring your years of service.

Status of employer. Your years of service include only periods during which your employer was a qualified employer. Your plan administrator can tell you whether or not your employer was qualified during all your periods of service.

Service with one employer. Generally, you cannot count service for any employer other than the one who maintains your 403(b) account.

Church employee. If you are a church employee, treat all of your years of service with related church organizations as years of service with the same employer. For more information about church employees, see chapter 5.

Self-employed ministers. If you are a self-employed minister, your years of service include full and part years in which you have been treated as employed by a tax-exempt organization that is a qualified employer.

Total years of service. When figuring prior years of service, figure each year individually and then add the individual years of service to determine your total years of service.

Example. The annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. Marsha began working with ABC schools in September 2011. She has always worked full-time for each annual work period. At the end of 2015, Marsha had 4.5 years of service with ABC Public Schools, as shown in Table 4-1.

Table 4-1. Marsha's Years of Service

 Note. This table shows how Marsha figures her

 years of service, as explained in the previous

 example.

 ----------------------------------------------

Portion of

           Period         Work      Years of

 Year      Worked        Period     Service

 ----------------------------------------------

 2011     Sept.-Dec.    .5 year      .5 year

 ----------------------------------------------

          Feb.-May      .5 year

          ----------------------

 2012      Sept.-       .5 year       1 year

           Dec.

 ----------------------------------------------

          Feb.-May      .5 year

          ----------------------

 2013      Sept.-       .5 year       1 year

           Dec.

 ----------------------------------------------

          Feb.-May      .5 year

          ----------------------

 2014      Sept.-       .5 year       1 year

           Dec.

 ----------------------------------------------

          Feb.-May       .5 year

         -----------------------

 2015      Sept.-        .5 year       1 year

           Dec.

 ----------------------------------------------

Total years of service

             4.5 years

 ----------------------------------------------

To figure your years of service, you must analyze each year individually and determine whether you worked full-time for the full year or something other than full-time. When determining whether you worked full-time or something other than full-time, use your employer's annual work period as the standard.

Employer's annual work period. Your employer's annual work period is the usual amount of time an individual working full-time in a specific position is required to work. Generally, this period of time is expressed in days, weeks, months, or semesters, and can span 2 calendar years.

Note. You cannot accumulate more than 1 year of service in a 12-month period.

Example. All full-time teachers at ABC Public Schools are required to work both the September through December semester and the February through May semester. Therefore, the annual work period for full-time teachers employed by ABC Public Schools is September through December and February through May. Teachers at ABC Public Schools who work both semesters in the same calendar year are considered working a full year of service in that calendar year.

Full-Time Employee for the Full Year

Count each full year during which you were employed full-time as 1 year of service. In determining whether you were employed full-time, compare the amount of work you were required to perform with the amount of work normally required of others who held the same position with the same employer and who generally received most of their pay from the position.

How to compare. You can use any method that reasonably and accurately reflects the amount of work required. For example, if you are a teacher, you can use the number of hours of classroom instruction as a measure of the amount of work required.

In determining whether positions with the same employer are the same, consider all of the facts and circumstances concerning the positions, including the work performed, the methods by which pay is determined, and the descriptions (or titles) of the positions.

Example. An assistant professor employed in the English department of a university will be considered a full-time employee if the amount of work that he or she is required to perform is the same as the amount of work normally required of assistant professors of English at that university who get most of their pay from that position.

If no one else works for your employer in the same position, compare your work with the work normally required of others who held the same position with similar employers or similar positions with your employer.

Full year of service. A full year of service for a particular position means the usual annual work period of anyone employed full-time in that general type of work at that place of employment.

Example. If a doctor works for a hospital 12 months of a year except for a 1-month vacation, the doctor will be considered as employed for a full year if the other doctors at that hospital also work 11 months of the year with a 1-month vacation. Similarly, if the usual annual work period at a university consists of the fall and spring semesters, an instructor at that university who teaches these semesters will be considered as working a full year.

Other Than Full-Time for the Full Year

If, during any year, you were employed full-time for only part of your employer's annual work period, part-time for the entire annual work period, or part-time for only part of the work period, your year of service for that year is a fraction of your employer's annual work period.

Full-time for part of the year. If, during a year, you were employed full-time for only part of your employer's annual work period, figure the fraction for that year as follows.

Jason was employed as a full-time instructor by a local college for the 4 months of the 2015 spring semester (February 2015 through May 2015). The annual work period for the college is 8 months (February through May and July through October). Given these facts, Jason was employed full-time for part of the annual work period and provided 1/2 of a year of service. Jason's years of service computation for 2015 is as follows.

    Number of months

      Jason worked               4       1

 ------------------------    =  ---  =  ---

    Number of months in          8       2

    annual work period

If, during a year, you were employed part-time for the employer's entire annual work period, you figure the fraction for that year as follows.

Vance teaches one course at a local medical school. He teaches 3 hours per week for two semesters. Other faculty members at the same school teach 9 hours per week for two semesters. The annual work period of the medical school is two semesters. An instructor teaching 9 hours a week for two semesters is considered a full-time employee. Given these facts, Vance has worked part-time for a full annual work period. Vance has completed 1/3 of a year of service, figured as shown below.

    Number of hours per

     week Vance worked          3       1

 ------------------------      ---     ---

    Number of hours per    =    9   =   3

      week considered

         full-time

If, during any year, you were employed part-time for only part of your employer's annual work period, you figure your fraction for that year by multiplying two fractions.

Figure the first fraction as though you had worked full-time for part of the annual work period. The fraction is as follows.

Figure the second fraction as though you had worked part-time for the entire annual work period. The fraction is as follows.

Once you have figured these two fractions, multiply them together to determine the fraction representing your partial year of service for the year.

Example. Maria, an attorney, teaches a course for one semester at a law school. She teaches 3 hours per week. The annual work period for teachers at the school is two semesters. All full-time instructors at the school are required to teach 12 hours per week. Based on these facts, Maria is employed part-time for part of the annual work period. Her year of service for this year is determined by multiplying two fractions. Her computation is as follows.

Maria's first fraction

    Number of semesters Maria

             worked                   1

 -------------------------------  =  ---

  Number of semesters in annual       2

           work period

    Number of hours Maria

       worked per week                3       1

  ------------------------------     ---     ---

     Number of hours per          =  12   =   4

       week considered

          full-time

Maria would multiply these fractions to obtain the fractional year of service.

   1          1          1

 -----  ×   -----   =  -----

   2          4          8

Figuring the Limit on Elective Deferrals

You can use Part II of Worksheet 1 in chapter 9 to figure the limit on elective deferrals.

Example

Floyd has figured his limit on annual additions. The only other component needed before he can determine his MAC for 2016 is his limit on elective deferrals.

Figuring Floyd's limit on elective deferrals. Floyd has been employed with his current employer for less than 15 years. He is not eligible for the special 15-year increase. Therefore, his limit on elective deferrals for 2016 is $18,000 as shown in Table 4-2.

Floyd's employer will not make any nonelective contributions to his 403(b) account and Floyd will not make any after-tax contributions. Additionally, Floyd's employer does not offer a Roth contribution program.

Figuring Floyd's MAC

Floyd has determined that his limit on annual additions for 2016 is $53,000 and his limit on elective deferrals is $18,000. Because elective deferrals are the only contributions made to Floyd's account, the maximum amount that can be contributed to a 403(b) account on Floyd's behalf in 2016 is $18,000, the lesser of both limits.

Table 4-2. Worksheet 1. Maximum Amount Contributable (MAC)

 Note. Use this worksheet to figure your MAC

 ----------------------------------------------------------------------

Part I. Limit on Annual Additions

1.

 Enter your includible compensation for your most

     recent year of service                                  

1.

$70,475

2.

 Maximum:

      • For 2015, enter $53,000

      • For 2016, enter $53,000                              

2.

 53,000

3.

 Enter the lesser of line 1 or line 2. This is your

     limit on annual additions                              

3.

 53,000

Caution:

 If you had only nonelective contributions,

     skip Part II and enter the amount from line 3 on line

     18.

Part II. Limit on Elective Deferrals

4.

 Maximum contribution:

      • For 2015, enter $18,000

      • For 2016, enter $18,000                              

4.

 18,000

Note.

 If you have at least 15 years of service with

     a qualifying organization, complete lines 5 through

     17. If not, enter zero (-0-) on line 16 and go to

     line 17.

5.

 Amount per year of service                              

5.

  5,000

6.

 Enter your years of service                            

6.

 _______

7.

 Multiply line 5 by line 6                              

7.

 _______

8.

 Enter the total of all elective deferrals made for

     you by the qualifying organization for prior years      

8.

 _______

9.

 Subtract line 8 from line 7. If zero or less, enter

     zero (-0-)                                              

9.

 _______

10.

 Maximum increase in limit for long service            

10.

 15,000

11.

 Enter the total of additional pre-tax elective

     deferrals made in prior years under the 15-year rule  

11.

 _______

12.

 Enter the aggregate amount of all designated Roth

     contributions permitted for prior years under the

     15-year rule                                          

12.

 _______

13.

 Add lines 11 and 12                                    

13.

 _______

14.

 Subtract line 13 from line 10                          

14.

 _______

15.

 Maximum additional contributions                      

15.

  3,000

16.

 Enter the least of line 9, 14, or 15. This is your

     increase in the limit for long service                

16.

    -0-

17.

 Add lines 4 and 16. This is your limit on elective

     deferrals                                              

17.

 18,000

Part III. Maximum Amount Contributable

18.

  • If you had only nonelective contributions, enter

        the amount from line 3. This is your MAC.

      • If you had only elective deferrals, enter the

        lesser of line 3 or 17. This is your MAC.

      • If you had both elective deferrals and nonelective

        contributions, enter the amount from line 3. This

        is your MAC. (Use the amount on line 17 to

        determine if you have excess elective deferrals as

        explained in chapter 7.)                            

18.

$18,000

 ----------------------------------------------------------------------

Self-employed ministers and church employees who participate in 403(b) plans generally follow the same rules as other 403(b) plan participants.

This means that if you are a self-employed minister or a church employee, your MAC generally is the lesser of:

For most ministers and church employees, the limit on annual additions is figured without any changes. This means that if you are a minister or church employee, your limit on annual additions generally is the lesser of:

Although, in general, the same limit applies, church employees can choose an alternative limit and there are changes in how church employees, foreign missionaries, and self-employed ministers figure includible compensation for the most recent year of service. This chapter will explain the alternative limit and the changes.

Who is a church employee? A church employee is anyone who is an employee of a church or a convention or association of churches, including an employee of a tax-exempt organization controlled by or associated with a church or a convention or association of churches.

Alternative Limit for Church Employees

If you are a church employee, you can choose to use $10,000 a year as your limit on annual additions, even if your annual additions figured under the general rule is less.

Total contributions over your lifetime under this choice cannot be more than $40,000.

Changes to Includible Compensation for Most Recent Year of Service

There are two types of changes in determining includible compensation for the most recent year of service. They are:

Changes to Includible Compensation

Includible compensation is figured differently for foreign missionaries and self-employed ministers.

Foreign missionary. If you are a foreign missionary, your includible compensation includes foreign earned income that may otherwise be excludable from your gross income under section 911.

If you are a foreign missionary, and your adjusted gross income is $17,000 or less, contributions to your 403(b) account will not be treated as exceeding the limit on annual additions if the contributions are not in excess of $3,000.

You are a foreign missionary if you are either a layperson or a duly ordained, commissioned, or licensed minister of a church and you meet both of the following requirements.

If you are a self-employed minister, you are treated as an employee of a tax-exempt organization that is a qualified employer. Your includible compensation is your net earnings from your ministry minus the contributions made to the retirement plan on your behalf and the deductible portion of your self-employment tax.

Changes to Years of Service

Generally, only service with the employer who maintains your 403(b) account can be counted when figuring your limit on annual additions.

Church employee. If you are a church employee, treat all of your years of service as an employee of a church or a convention or association of churches as years of service with one employer.

Self-employed minister. If you are a self-employed minister, your years of service include full and part years during which you were self-employed.

6. Catch-Up Contributions

The most that can be contributed to your 403(b) account is the lesser of your limit on annual additions or your limit on elective deferrals.

If you will be age 50 or older by the end of the year, you may also be able to make additional catch-up contributions. These additional contributions cannot be made with after-tax employee contributions.

You are eligible to make catch-up contributions if:

The maximum amount of catch-up contributions is the lesser of:

When figuring allowable catch-up contributions, combine all catch-up contributions made by your employer on your behalf to the following plans.

The total amount of the catch-up contributions on your behalf to all plans maintained by your employer cannot be more than the annual limit. For 2015 and 2016, the limit is $6,000.

CAUTION: If you are eligible for both the 15-year rule increase in elective deferrals and the age 50 catch-up, allocate amounts first under the 15-year rule and next as an age 50 catch-up.

TIP: Catch-up contributions are not counted against your MAC. Therefore, the maximum amount that you are allowed to have contributed to your 403(b) account is your MAC plus your allowable catch-up contributions.

You can use Worksheet C in chapter 9 to figure your limit on catch-up contributions.

7. Excess Contributions

If your actual contributions (not including catch-up contributions) are greater than your MAC, you have an excess contribution. Excess contributions can result in income tax, additional taxes, and penalties. The effect of excess contributions depends on the type of excess contribution. This chapter discusses excess contributions to your 403(b) account.

How Do I Know If I Have Excess Contributions?

At the end of the year or the beginning of the next year, you should refigure your MAC based on your actual compensation and actual contributions made to your account.

If the actual contributions (not including catch-up contributions) to your account are greater than your MAC, you have excess contributions. If, at any time during the year, your employment status or your compensation changes, you should refigure your MAC using a revised estimate of compensation to prevent excess contributions.

What Happens If I Have Excess Contributions?

Certain excess contributions in a 403(b) account can be corrected. The effect of an excess 403(b) contribution will depend on the type of excess contribution.

Types of excess contributions. If, after checking your actual contributions, you determine that you have an excess, the first thing is to identify the type of excess that you have. Excess contributions to a 403(b) account are categorized as either an:

Excess Annual Addition

An excess annual addition is a contribution (not including catch-up contributions) that is more than your limit on annual additions. To determine your limit on annual additions, see chapter 3 (chapter 5 for ministers or church employees).

In the year that your contributions are more than your limit on annual additions, the excess amount will be included in your income.

Excise Tax

If your 403(b) account invests in mutual funds, and you exceed your limit on annual additions, you may be subject to a 6% excise tax on the excess contribution. The excise tax does not apply to funds in an annuity account or to excess deferrals.

You must pay the excise tax each year in which there are excess contributions in your account. Excess contributions can be corrected by contributing less than the applicable limit in later years or by making permissible distributions. See chapter 8 for a discussion on permissible distributions.

You cannot deduct the excise tax.

Reporting requirement. You must file Form 5330 if there has been an excess contribution to a custodial account and that excess has not been corrected.

Excess Elective Deferral

An excess elective deferral is the amount that is more than your limit on elective deferrals. To determine your limit on elective deferrals, see chapter 4.

Your employer's 403(b) plan may contain language permitting it to distribute excess deferrals. If so, it may require that in order to get a distribution of excess deferrals, you either notify the plan of the amount of excess deferrals or designate a distribution as an excess deferral. The plan may require that the notification or designation be in writing and may require that you certify or otherwise establish that the designated amount is an excess deferral. A plan is not required to permit distribution of excess deferrals.

Correction of excess deferrals during year. If you have excess deferrals for a year, a corrective distribution may be made only if both of the following conditions are satisfied.

If you have excess deferrals for a year, you may receive a correcting distribution of the excess deferral no later than April 15 of the following year. The plan can distribute the excess deferral (and any income allocable to the excess) no later than April 15 of the year following the year the excess deferral was made.

Tax treatment of excess deferrals not attributable to Roth contributions. If the excess deferral is distributed by April 15, it is included in your income in the year contributed and the earnings on the excess deferral will be taxed in the year distributed.

Tax treatment of excess deferrals attributable to Roth contributions. For these rules, see Regulations section 8. Distributions and Rollovers

Distributions

Permissible distributions. Generally, a distribution cannot be made from a 403(b) account until the employee:

In most cases, the payments you receive or that are made available to you under your 403(b) account are taxable in full as ordinary income. In general, the same tax rules apply to distributions from 403(b) plans that apply to distributions from other retirement plans. These rules are explained in

.

also discusses the additional tax on early distributions from retirement plans.

Retired public safety officers. If you are an eligible retired public safety officer, distributions of up to $3,000, made directly from your 403(b) plan to pay accident, health, or long-term care insurance, are not included in your taxable income. The premiums can be for you, your spouse, or your dependents.

A public safety officer is a law enforcement officer, fire fighter, chaplain, or member of a rescue squad or ambulance crew.

For additional information, see Pub. 575.

Distribution for active reservist. The 10% penalty for early withdrawals will not apply to a qualified reservist distribution attributable to elective deferrals from a 403(b) plan. A qualified reservist distribution is a distribution that is made:

Minimum Required Distributions

You must receive all, or at least a certain minimum, of your interest accruing after 1986 in the 403(b) plan by April 1 of the calendar year following the later of the calendar year in which you become age 70 1/2, or the calendar year in which you retire.

TIP: Check with your employer, plan administrator, or provider to find out whether this rule also applies to pre-1987 accruals. If not, a minimum amount of these accruals must begin to be distributed by the later of the end of the calendar year in which you reach age 75 or April 1 of the calendar year following retirement. For each year thereafter, the minimum distribution must be made by the last day of the year. If you do not receive the required minimum distribution, you are subject to a nondeductible 50% excise tax on the difference between the required minimum distribution and the amount actually distributed.

No Special 10-Year Tax Option

A distribution from a 403(b) plan does not qualify as a lump-sum distribution. This means you cannot use the special 10-year tax option to calculate the taxable portion of a 403(b) distribution. For more information, see Pub. 575.

Transfer of Interest in 403(b) Contract

Contract exchanges. If you transfer all or part of your interest from a 403(b) contract to another 403(b) contract (held in the same plan), the transfer is tax free, and is referred to as a contract exchange. This was previously known as a 90-24 transfer. A contract exchange is similar to a 90-24 transfer with one major difference. Previously, you were able to accomplish the transfer without your employer's involvement. After September 24, 2007, all such transfers are accomplished through a contract exchange requiring your employer's involvement. In addition, the plan must provide for the exchange and the transferred interest must be subject to the same or stricter distribution restrictions. Finally, your accumulated benefit after the exchange must be equal to what it was before the exchange.

Transfers that do not satisfy this rule are plan distributions and are generally taxable as ordinary income.

Plan-to-plan transfers. You may also transfer part or all of your interest from a 403(b) plan to another 403(b) plan if you are an employee of (or were formerly employed by) the employer of the plan to which you would like to transfer. Both the initial plan and the receiving plan must provide for transfers. Your accumulated benefit after the transfer must be at least equal to what it was before the transfer. The new plan's restrictions on distributions must be the same or stricter than those of the original plan.

Tax-free transfers for certain cash distributions. A tax-free transfer may also apply to a cash distribution of your 403(b) account from an insurance company that is subject to a rehabilitation, conservatorship, insolvency, or similar state proceeding. To receive tax-free treatment, you must do all of the following.

In addition to the preceding requirements, you must provide the new insurer with a written statement containing all of the following information.

Also, you must attach the following items to your timely filed income tax return in the year you receive the first distribution of cash.

If you make a direct trustee-to-trustee transfer, from your governmental 403(b) account to a defined benefit governmental plan, it may not be includible in gross income.

The transfer amount is not includible in gross income if it is made to:

For distributions beginning after December 31, 2006, after-tax contributions can be rolled over between a 403(b) plan and a defined benefit plan, IRA, or a defined contribution plan. If the rollover is to or from a 403(b) plan, it must occur through a direct trustee-to-trustee transfer.

Permissive service credit. A permissive service credit is credit for a period of service recognized by a defined benefit governmental plan only if you voluntarily contribute to the plan an amount that does not exceed the amount necessary to fund the benefit attributable to the period of service and the amount contributed is in addition to the regular employee contribution, if any, under the plan.

A permissive service credit may also include service credit for up to 5 years where there is no performance of service, or service credited to provide an increased benefit for service credit which a participant is receiving under the plan.

Check with your plan administrator as to the type and extent of service that may be purchased by this transfer.

Tax-Free Rollovers

You can generally roll over tax free all or any part of a distribution from a 403(b) plan to a traditional IRA or a non-Roth eligible retirement plan, except for any nonqualifying distributions, described later. You may also roll over any part of a distribution from a 403(b) plan by converting it through a direct rollover, described below, to a Roth IRA. Conversion amounts are generally includible in your taxable income in the year of the distribution from your 403(b) account. See Pub. 590-A for more information about conversion into a Roth IRA.

Note. A participant is required to roll over distribution amounts received within 60 calendar days in order for the amount to be treated as nontaxable. Distribution amounts that are rolled over within the 60 days are not subject to the 10% early distribution penalty.

Rollovers to and from 403(b) plans. You can generally roll over tax free all or any part of a distribution from an eligible retirement plan to a 403(b) plan. Beginning January 1, 2008, distributions from tax-qualified retirement plans and tax-sheltered annuities can be converted by making a direct rollover into a Roth IRA subject to the restrictions that currently apply to rollovers from a traditional IRA into a Roth IRA. Converted amounts are generally includible in your taxable income in the year of the distribution from your 403(b) account. See Pub. 590-A for more information on conversion into a Roth IRA.

If a distribution includes both pre-tax contributions and after-tax contributions, the portion of the distribution that is rolled over is treated as consisting first of pre-tax amounts (contributions and earnings that would be includible in income if no rollover occurred). This means that if you roll over an amount that is at least as much as the pre-tax portion of the distribution, you do not have to include any of the distribution in income.

For more information on rollovers and eligible retirement plans, see Pub. 575.

CAUTION: If you roll over money or other property from a 403(b) plan to an eligible retirement plan, see Pub. 575 for information about possible effects on later distributions from the eligible retirement plan.

Hardship exception to rollover rules. The IRS may waive the 60-day rollover 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 an individual.

To obtain a hardship exception, you must apply to the IRS for a waiver of the 60-day rollover requirement. You apply for the waiver by following the general instructions used in requesting a letter ruling (see Revenue Procedure 2003-16, which is on page 359 of I.R.B. 2003-4 at http://www.irs.gov/pub/irs-irbs/irb03-04.pdf). These instructions are stated in Revenue Procedure 2015-4, 2015-1 I.R.B. 144, available at http://www.irs.gov/irb/2015-1_IRB/ar10.html, or see the latest annual update. You must also pay a user fee with the application. The user fee for a rollover that is less than $50,000 is $500. For rollovers that are $50,000 or more, see Revenue Procedure 2015-8, 2015-1 I.R.B. 235, available at http://www.irs.gov/irb/2015-1_IRB/ar14.html, or see the latest annual update.

In determining whether to grant a waiver, the IRS will consider all relevant facts and circumstances, including:

For additional information on rollovers, see

.

Eligible retirement plans. The following are considered eligible retirement plans.

If the distribution is from a designated Roth account, then the only eligible retirement plan is another designated Roth account or a Roth IRA.

Nonqualifying distributions. You cannot roll over tax free:

You may be able to roll over the nontaxable part of a distribution (such as your after-tax contributions) made to another eligible retirement plan, traditional IRA, or Roth IRA. The transfer must be made either through a direct rollover to an eligible plan that separately accounts for the taxable and nontaxable parts of the rollover or through a rollover to a traditional IRA or Roth IRA.

If you roll over only part of a distribution that includes both taxable and nontaxable amounts, the amount you roll over is treated as coming first from the taxable part of the distribution.

Direct rollovers of 403(b) plan distributions. You have the option of having your 403(b) plan make the rollover directly to a traditional IRA, Roth IRA, or new plan. Before you receive a distribution, your plan will give you information on this. It is generally to your advantage to choose this option because your plan will not withhold tax on the distribution if you choose it.

Distribution received by you. If you receive a distribution that qualifies to be rolled over, you can roll over all or any part of the distribution. Generally, you will receive only 80% of the distribution because 20% must be withheld. If you roll over only the 80% you receive, you must pay tax on the 20% you did not roll over. You can replace the 20% that was withheld with other money within the 60-day period to make a 100% rollover.

Voluntary deductible contributions. For tax years 1982 through 1986, employees could make deductible contributions to a 403(b) plan under the individual retirement arrangement (IRA) rules instead of deducting contributions to a traditional IRA.

If you made voluntary deductible contributions to a 403(b) plan under these traditional IRA rules, the distribution of all or part of the accumulated deductible contributions may be rolled over if it otherwise qualifies as a distribution you can roll over. Accumulated deductible contributions are the deductible contributions:

The portion of a distribution from a 403(b) plan transferred to a traditional IRA that was previously included in income as excess employer contributions is not an eligible rollover distribution.

Its transfer does not affect the rollover treatment of the eligible portion of the transferred amounts. However, the ineligible portion is subject to the traditional IRA contribution limits and may create an excess IRA contribution subject to a 6% excise tax (see chapter 1 of Pub. 590-A).

Qualified domestic relations order. You may be able to roll over tax free all or any part of an eligible rollover distribution from a 403(b) plan that you receive under a qualified domestic relations order (QDRO). If you receive the interest in the 403(b) plan as an employee's spouse or former spouse under a QDRO, all of the rollover rules apply to you as if you were the employee. You can roll over your interest in the plan to a traditional IRA or another 403(b) plan. For more information on the treatment of an interest received under a QDRO, see Pub. 575.

Spouses of deceased employees. If you are the spouse of a deceased employee, you can roll over the qualifying distribution attributable to the employee. You can make the rollover to any eligible retirement plan.

After you roll money and other property over from a 403(b) plan to an eligible retirement plan, and you take a distribution from that plan, you will not be eligible to receive the capital gain treatment or the special averaging treatment for the distribution.

Second rollover. If you roll over a qualifying distribution to a traditional IRA, you can, if certain conditions are satisfied, later roll the distribution into another 403(b) plan. For more information, see IRA as a holding account (conduit IRA) for rollovers to other eligible plans in chapter 1 of Pub. 590-A.

Nonspouse beneficiary. A nonspouse beneficiary may make a direct rollover of a distribution from a 403(b) plan of a deceased participant if the rollover is a direct transfer to an inherited IRA established to receive the distribution. If the rollover is a direct trustee-to-trustee transfer to an IRA established to receive the distribution:

For more information on IRAs, see Pubs. 590-B.

Frozen deposits. The 60-day period usually allowed for completing a rollover is extended for any time that the amount distributed is a frozen deposit in a financial institution. The 60-day period cannot end earlier than 10 days after the deposit ceases to be a frozen deposit.

A frozen deposit is any deposit that on any day during the 60-day period cannot be withdrawn because:

If, by choosing or not choosing an election, or option, you provide an annuity for your beneficiary at or after your death, you may have made a taxable gift equal to the value of the annuity.

Joint and survivor annuity. If the gift is an interest in a joint and survivor annuity where only you and your spouse have the right to receive payments, the gift will generally be treated as qualifying for the unlimited marital deduction.

More information. For information on the gift tax, see Pub. 559, Survivors, Executors, and Administrators.

9. Worksheets

Chapter 2 introduced you to the term maximum amount contributable (MAC). Generally, your MAC is the lesser of your:

The worksheets in this chapter can help you figure the cost of incidental life insurance, your includible compensation, your limit on annual additions, your limit on elective deferrals, your limit on catch-up contributions, and your MAC.

After completing the worksheets, you should maintain them with your 403(b) records for that year. Do not attach them to your tax return. At the end of the year or the beginning of the next year, you should compare your estimated compensation figures with your actual figures.

If your compensation is the same as, or more than, the projected amounts and the calculations are correct, then you should simply file these worksheets with your other tax records for the year.

If your compensation was lower than your estimated figures, you will need to check the amount contributed during the year to determine if contributions are more than your MAC.

When Should I Figure MAC?

At the beginning of each year, you should figure your MAC using a conservative estimate of your compensation. Should your income change 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 should be increased or decreased for the year.

Checking the Previous Year's Contributions

At the beginning of the following year, you should refigure your MAC based on your actual earned income.

At the end of the current year or the beginning of the next year, you should check your contributions to be sure you did not exceed your MAC. This means refiguring your limit based on your actual compensation figures for the year. This will allow you to determine if the amount contributed is more than the allowable amounts, and possibly avoid additional taxes.

Available Worksheets

The following worksheets have been provided to help you figure your MAC.

 Note. Use this worksheet to figure the cost of incidental life

 insurance included in your annuity contract. This amount will be

 used to figure includible compensation for your most recent year

 of service.

 ----------------------------------------------------------------------

1.

 Enter the value of the contract (amount payable upon

    your death)                                              

1.

 ______

2.

 Enter the cash value in the contract at the end of the

    year                                                      

2.

 ______

3.

 Subtract line 2 from line 1. This is the value of your

    current life insurance protection                        

3.

 ______

4.

 Enter your age on your birthday nearest the beginning

    of the policy year                                        

4.

 ______

5.

 Enter the 1-year term premium for $1,000 of life

    insurance based on your age. (From Figure 3-1)            

5.

 ______

6.

 Divide line 3 by $1,000                                  

6.

 ______

7.

 Multiply line 6 by line 5. This is the cost of your

    incidental life insurance                                

7.

 ______

 ----------------------------------------------------------------------

 Note. Use this worksheet to figure includible compensation for your

 most recent year of service.

 ----------------------------------------------------------------------

1.

 Enter your includible wages from the employer

     maintaining your 403(b) account for your most recent

     year of service                                          

1.

 ______

2.

 Enter elective deferrals excluded from your gross

     income for your most recent year of service

²

2.

 ______

3.

 Enter amounts contributed or deferred by your employer

     under a cafeteria plan for your most recent year of

     service                                                  

3.

 ______

4.

 Enter amounts contributed or deferred by your employer

     according to your election to your 457 account (a

     nonqualified plan of a state or local government or of

     a tax-exempt organization) for your most recent year

     of service                                              

4.

 ______

5.

 Enter pre-tax contributions (employer's contributions

     made on your behalf according to your election) to a

     qualified transportation fringe benefit plan for your

     most recent year of service                              

5.

 ______

6.

 Enter your foreign earned income exclusion for your

     most recent year of service                              

6.

 ______

7.

 Add lines 1, 2, 3, 4, 5, and 6                          

7.

 ______

8.

 Enter the cost of incidental life insurance that is

     part of your annuity contract for your most recent

     year of service                                          

8.

 ______

9.

 Enter compensation that was

both

:

      • Earned during your most recent year of service, and

      • Earned while your employer was not qualified to

        maintain a 403(b) plan                                

9.

 ______

10.

 Add lines 8 and 9                                      

10.

 ______

11.

 Subtract line 10 from line 7. This is your includible

     compensation for your most recent year of service      

11.

 ______

¹

Use estimated amounts if figuring includible compensation before the

 end of the year.

²

Elective deferrals made to a designated Roth account are not

 excluded from your gross income and should not be included on this

 line.

 ======================================================================

 Note. If you will be age 50 or older by the end of the year, use this

 worksheet to figure your limit on catch-up contributions.

 ----------------------------------------------------------------------

1.

 Maximum catch-up contributions                            

1.

$6,000

2.

 Enter your includible compensation for your most recent

    year of service                                          

2.

 ______

3.

 Enter your elective deferrals                            

3.

 ______

4.

 Subtract line 3 from line 2                              

4.

 ______

5.

 Enter the lesser of line 1 or line 4. This is your limit

    on catch-up contributions                                

5.

 ______

 ----------------------------------------------------------------------

 Note. Use this worksheet to figure your MAC

 ----------------------------------------------------------------------

Part I. Limit on Annual Additions

1.

 Enter your includible compensation for your most

     recent year of service                                  

1.

 _______

2.

 Maximum

¹

:

      • For 2015, enter $53,000

      • For 2016, enter $53,000                              

2.

 _______

3.

 Enter the lesser of line 1 or line 2. This is your

     limit on annual additions                              

3.

 _______

Caution:

 If you had only nonelective contributions,

     skip Part II and enter the amount from line 3 on

     line 18.

Part II. Limit on Elective Deferrals

4.

 Maximum contribution:

      • For 2015, enter $18,000

      • For 2016, enter $18,000                              

4.

 _______

Note.

 If you have at least 15 years of service with a

     qualifying organization, complete lines 5 through 17.

     If not, enter zero (-0-) on line 16 and go to line

     17.

5.

 Amount per year of service                              

5.

 $5,000

6.

 Enter your years of service                            

6.

 _______

7.

 Multiply line 5 by line 6                              

7.

 _______

8.

 Enter the total of all elective deferrals made for

     you by the qualifying organization for prior years      

8.

 _______

9.

 Subtract line 8 from line 7. If zero or less, enter

     zero (-0-)                                              

9.

 _______

10.

 Maximum increase in limit for long service            

10.

$15,000

11.

 Enter the total of additional pre-tax elective

     deferrals made in prior years under the 15-year rule  

11.

 _______

12.

 Enter the aggregate amount of all designated Roth

     contributions permitted for prior years under the

     15-year rule                                          

12.

 _______

13.

 Add line 11 and line 12                                

13.

 _______

14.

 Subtract line 13 from line 10                          

14.

 _______

15.

 Maximum additional contributions                      

15.

 $3,000

16.

 Enter the least of line 9, 14, or 15. This is your

     increase in the limit for long service                

16.

 _______

17.

 Add lines 4 and 16. This is your limit on elective

     deferrals                                              

17.

 _______

Part III. Maximum Amount Contributable

18.

  • If you had only nonelective contributions, enter

        the amount from line 3. This is your MAC.

      • If you had only elective deferrals, enter the

        lesser of line 3 or 17. This is your MAC.

      • If you had both elective deferrals and nonelective

        contributions, enter the amount from line 3. This

        is your MAC. (Use the amount on line 17 to

        determine if you have excess elective deferrals as

        explained in chapter 7.)                            

18.

 _______

¹

If you participate in a 403(b) plan and a qualified plan, you must

 combine contributions made to your 403(b) account with contributions

 to a qualified plan and simplified employee pension plans of all

 corporations, partnerships, and sole proprietorships in which you have

 more than 50% control. You must also combine the contributions made

 to all 403(b) accounts on your behalf by your employer.

 ======================================================================

If you or your employer make eligible contributions (defined later) to a retirement plan, you may be able to take a credit of up to $1,000 (up to $2,000 if filing jointly). This credit could reduce the federal income tax you pay dollar for dollar.

Can you claim the credit? If you or your employer make eligible contributions to a retirement plan, you can claim the credit if all of the following apply.

You are a full-time student if, during some part of each of 5 calendar months (not necessarily consecutive) during the calendar year, you are either:

You are a full-time student if you are enrolled for the number of hours or courses the school considers to be full-time.

Adjusted gross income. This is generally the amount on line 38 of your 2015 Form 1040 or line 22 of your 2015 Form 1040A. However, you must add to that amount any exclusion or deduction claimed for the year for:

These include:

annuity. For purposes of the credit, an employee contribution will be voluntary as long as it is not required as a condition of employment.

Reducing eligible contributions. Reduce your eligible contributions (but not below zero) by the total distributions you received during the testing period (defined later) from any IRA, plan, or annuity included earlier under Eligible contributions. Also reduce your eligible contributions by any distribution from a Roth IRA that is not rolled over, even if the distribution is not taxable.

Do not reduce your eligible contributions by any of the following.

Any distributions your spouse receives are treated as received by you if you file a joint return with your spouse both for the year of the distribution and for the year for which you claim the credit.

Testing period. The testing period consists of:

You and your spouse filed joint returns in 2013 and 2014, and plan to do so in 2015 and 2016. You received a taxable distribution from a qualified plan in 2013 and a taxable distribution from an eligible section

deferred compensation plan in 2014. Your spouse received taxable distributions from a Roth IRA in 2015 and tax-free distributions from a Roth IRA in 2016 before April 15. You made eligible contributions to an IRA in 2015 and you otherwise qualify for this credit. You must reduce the amount of your qualifying contributions in 2015 by the total of the distributions you and your spouse received in 2013, 2014, 2015, and 2016.

Maximum eligible contributions. After your contributions are reduced, the maximum annual contribution on which you can base the credit is $2,000 per person.

Effect on other credits. The amount of this credit will not change the amount of your refundable tax credits. A refundable tax credit, such as the earned income credit or the additional child tax credit, is an amount that you would receive as a refund even if you did not otherwise owe any taxes.

Maximum credit. This is a nonrefundable credit. The amount of the credit in any year cannot be more than the amount of tax that you would otherwise pay (not counting any refundable credits or the adoption credit) in any year. If your tax liability is reduced to zero because of other nonrefundable credits, such as the education credits, then you will not be entitled to this credit.

How to figure and report the credit. The amount of the credit you can get is based on the contributions you make and your credit rate. The credit rate can be as low as 10% or as high as 50%. Your credit rate depends on your income and your filing status. See Form 8880, Credit for Qualified Retirement Savings Contributions, to determine your credit rate.

The maximum contribution taken into account is $2,000 per person. On a joint return, up to $2,000 is taken into account for each spouse.

Figure the credit on Form 8880. Report the credit on line 51 of your 2015 Form 1040 or line 34 of your 2015 Form 1040A, and attach Form 8880 to your return.

11. How To Get Tax Help

If you have questions about a tax issue, need help preparing your tax return, or want to download free publications, forms, or instructions, go to IRS.gov and find resources that can help you right away.

Preparing and filing your tax return. Find free options to prepare and file your return on IRS.gov or in your local community if you qualify.

The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $54,000 or less, persons with disabilities, the elderly, and limited-English-speaking taxpayers who need help preparing their own tax returns. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors.

Getting answers to your tax law questions. On IRS.gov, get answers to your tax questions anytime, anywhere.

You can download or print all of the forms and publications you may need on

Otherwise, you can go to

to place an order and have forms mailed to you. You should receive your order within 10 business days.

Direct deposit. The fastest way to receive a tax refund is by combining direct deposit and IRS e-file. Direct deposit securely and electronically transfers your refund directly into your financial account. Eight in 10 taxpayers use direct deposit to receive their refund. The majority of refunds are received within 21 days or less.

Getting a transcript or copy of a return.

Go to IRS.gov and click on the Tools bar to use these and other self-service options.

For help with the alternative minimum tax, go to IRS.gov/AMT.

Understanding identity theft issues.

The IRS uses the latest encryption technology so electronic payments are safe and secure. You can make electronic payments online, by phone, or from a mobile device. Paying electronically is quick, easy, and faster than mailing in a check or money order. Go to

to make a payment using any of the following options.

Click on the "Pay Your Tax Bill" icon on IRS.gov for more information about these additional options.

Go to IRS.gov and click on the Tools tab and then

Understanding an IRS notice or letter. Enter "Understanding your notice" in the search box on IRS.gov to find additional information about your IRS notice or letter.

Visiting the IRS. Locate the nearest Taxpayer Assistance Center using the Office Locator tool on IRS.gov. Enter "office locator" in the search box. Or choose the "Contact Us" option on the IRS2Go app and search Local Offices. Before you visit, use the Locator tool to check hours and services available.

Watching IRS videos. The IRS Video portal http://www.irsvideos.gov contains video and audio presentations for individuals, small businesses, and tax professionals. You'll find video clips of tax topics, archived versions of panel discussions and Webinars, and audio archives of tax practitioner phone forums.

Getting tax information in other languages. For taxpayers whose native language is not English, we have the following resources available.

What is the Taxpayer Advocate Service?

Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service that helps taxpayers and protects taxpayer rights. Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.

What Can the Taxpayer Advocate Service Do For You?

We can help you resolve problems that you can't resolve with the IRS. And our service is free. If you qualify for our assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:

How Can You Reach Us?

We have offices in every state, the District of Columbia, and Puerto Rico. Your local advocate's number is in your local directory and at http://www.taxpayeradvocate.irs.gov. You can also call us at 1-877-777-4778.

How Can You Learn About Your Taxpayer Rights?

The Taxpayer Bill of Rights describes ten basic rights that all taxpayers have when dealing with the IRS. Our Tax Toolkit at http://www.taxpayeradvocate.irs.gov can help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.

How Else Does the Taxpayer Advocate Service Help Taxpayers?

TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to us at http://www.irs.gov/sams.

Low Income Taxpayer Clinics

Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. To find a clinic near you, visit http://www.irs.gov/litc or see IRS Pub. 4134, Low Income Taxpayer Clinic List.