Church Employees Special Election

[Guest BrandonT]

Here is an example. You have a church employee who is able to contribute $5,000 to the 403b. The employee decides to contribute an additional $2,500. In regards to the special election, is the whole $7,500 applied to the $10,000 special election or just the additional $2,500?

Please Help.

Thanks.

Brandon Carr

[Guest Yanikoski]

The tax code has always been a little vague about the church election, but the usual interpretation is that this election permits the employer and employee combined to contribute up to the normal limit, or up to a total (employee + employer) of $10,000, whichever is lower (although only employer contributions can go above the normal limit, since salary deferrals are capped at actual compensation). If a contribution is made above the normal limit, the amount above the normal limit counts against the $40,000 lifetime maximum for these extra contributions.

Your example is a little unclear. If you mean that the employee's income is $5000 so that the normal limit would be $5000, and the total contribution (employee and employer combined) is $7500, then this would indeed be within the scope of this provision. Of the total amount contributed, only $2500 (the amount above the normal limit, which is 100% of compensation) would could against the lifetime limit.