Tax Code Section 402(b) imposes annual limits on employee deferral contributions made to a 401(k) or 403(b) plan. For 2017, the limit is $18,000 if you were under age 50, and $24,000 if you were age 50 or older. Your form W-2 will show the amount of salary deferrals that your employer withheld from your pay in 2017. The amount will be included in Box 12 with a code of D, E, F or G indicating the type of plan to which you contributed.
If you worked for just one employer in 2017, that employer, as part of its annual testing, will confirm that your 2017 salary deferral contributions to its 401(k) plan or 403(b) plan did not exceed the annual limit. The annual deferral limits are applied separately to 401(k) plans and 403(b) plans. If you worked for more than one employer in 2017, it’s up to you to confirm that your salary deferral contributions to two or more 401(k) or 403(b) plans did not exceed the applicable limit. For example, if you are a professor and you taught courses at two different universities during the calendar year, and made contributions to each school’s 403(b) plan, you need to confirm that the total of your salary deferrals for 2017 does not exceed the limit.
If you find that your salary deferrals exceed the limit, you will need to advise one of the plan administrators of the amount that needs to be returned to you. Under IRS rules, the excess deferrals that are returned to you by April 15, 2018 must be included in your 2017 taxable income. If the excess deferrals are not returned to you by the April 15th deadline, you will be subject to double taxation on the excess deferral amount. The excess amount will be taxable income for 2017 (even though it has not been returned to you), and also taxable income in the year that it is finally distributed to you. Since some plans require that notice of excess deferrals be given no later than mid-March, it is important for individuals working for more than one company to check their W-2s as soon as they receive them.
Finally, if you participate in a 403(b) plan that includes employer contributions to your account, and you also have established a retirement plan for your part-time business, such as a consulting business, you will want to confirm with your advisors that the total contributions to the two plans do not exceed the Code Section 415(c) limit, which for 2017 was $54,000.
If you have questions about this information, please contact Deb Grace in the Troy, Michigan office at 248-433-7217.