by Hollee Vance
on November 14, 2017
In preparation for retirement, it is important to be aware of a few key facts regarding contributions. This allows you to maximize your annual limit and avoid over contributing to your 403(b) and/or 457(b) plan.
How much can I contribute?
Each year the IRS evaluates the annual limits to determine if they should be increased (by $500 increments) based on cost of living. In 2017, the annual contribution limit is $18,000 and is increasing to $18,500 in 2018. Please note, that contributions to a 403(b), 403(b) Roth and/or 401(k) plans are combined for the same annual limit; however, contributions to a 457(b) are separate. It is necessary to confirm the limit each year.
There are 3 types of catch-up contributions which allow employees to increase their annual limit each year. The first catch-up is purely based on age; therefore, the only verification is your date of birth to confirm your eligibility.
The following two special catch-up contributions have specific requirements for a participant to be eligible. These were created to allow employees to make up for missed contribution opportunities in prior years. Please check with your payroll or benefits department to confirm if the plan allows these special catch-ups. Once you have confirmed either or both catch-up is allowed, request a Maximum Allowable Contribution Worksheet (often referred to as a MAC) from your payroll or benefits office. This worksheet is required to confirm if you are eligible to utilize the catch-up and calculates the amount you may contribute over and above the annual limit. The calculations factor in your prior years contributions which determine the amount of the catch-up you can utilize, so have this information available. This can be obtained from prior year W-2’s.
What if I contributed more than I was eligible for?
Don’t panic! First, determine the amount you have over contributed to your retirement plan. This amount can be found by subtracting the amount on your most recent pay stub from your annual limit. Second, contact your payroll and/or benefits office to determine the best route to correct the excess amount. It is important to correct the over contribution before April 15 of the following plan year to avoid any tax penalties. There are two options to correct an over contribution:
By keeping these guidelines in mind, an employee can avoid over contributing while maximizing their contributions.