Communique -- January 2014

In this issue
  >>  403(b) and IRA contribution limits for 2014
  >>  Remittances: Apply to… (insert year here)
  >>  Roth 403(b) vs Roth IRA? Similar but not the same
  >>  Mandatory cash-out

 

403(b) and IRA contribution limits for 2014

The 403(b) standard elective limit or maximum contribution for 2014 will be $17,500 or 100% of compensation (whichever is less) for employees under age 50.

The 15 years of service catch-up provision—Employees with 15 years or more of service with the same employer and an annual average contribution of less than $5,000 per year may qualify to save up to $3,000 per year over the $17,500 standard elective limit. The maximum lifetime limit for this provision is $15,000.

The age 50 and older catch-up provision—In 2014, employees over age 50, or turning age 50 by year’s end, may contribute $5,500 over the $17,500 standard elective limit.

An employee may be eligible to take advantage of both catch-up elections simultaneously if the employer 403(b) plan allows. When an employee is eligible for both provisions, the additional contributions apply to the 15 years of service provision first and thus reduce the aggregate lifetime limit provision.

Please review your salary reduction agreements and/or vendor agreements to ensure they do not give your employees the false impression that they have a choice between the age provision and the service provision. Contributions in excess may result if the provisions are applied incorrectly. We recommend that employees who wish to contribute more than the standard elective limit and have 15 or more years of service complete a Contribution Limit Calculation Form (link). If your district hired a third party administrator, they may calculate the limits for the employees.

All of the above limits apply to before-tax AND after-tax 403(b) contributions. Participants may contribute to one or both, but the limit represents the maximum combined contribution.  

Internal Revenue Service Elective Contribution Limits

   2013 2014
 Salary Reduction Contribution Limit  $17,500  $17,500
 15-Years-of-Service Catch-Up  $3,000  $3,000
 Age-50-and-Over Catch-Up  $5,500  $5,500
 Possible Maximum  $26,000  $26,000

403(b) total contribution limit: employer and employee contributions—In 2014, the maximum annual total contribution limit is the lesser of 100% of the employee’s compensation or $52,000 (increased from 2013). However, employees age 50 and older may be eligible to contribute more.

IRA contribution limits for 2014

The IRA contribution limits remain the same as in 2013. The table below reflects the maximum contribution for a contributor that has sufficient earned income or files a joint tax return with a spouse who has sufficient earned income. Adjusted gross income limits apply and we recommend contributors consult their tax advisor regarding any eligibility concerns. Participants may contribute to a Roth IRA, a Traditional IRA, or both, but the limit represents the maximum combined Roth/Traditional IRA contribution.

Traditional and Roth IRA Contribution Limits*

   2013  2014
 Under Age 50  $5,500  $5,500
 Age 50 and Over  $6,500  $6,500

*Note: Because the maximum Roth IRA contribution may be reduced depending on MAGI (Modified Adjusted Gross Income), some high-income taxpayers may not be able to make Roth IRA contributions; however, they could make Traditional IRA contributions.

Remittances: Apply to… (insert year here)

The IRS contribution limits are for the calendar year and are based on when the deduction is taken from the payroll rather than when it is put into the account. When we receive contributions, we make note in our system the year for which the contribution applies. To ensure accuracy, we request that you confirm the date of the payroll for the contributions on your remittance reports—whether you use our reports or generate your own. Our remittance reports have a space in the upper right corner for the payroll date.

Roth 403(b) vs Roth IRA? Similar but not the same 

An employee walks into your office and says, “I’d like to open a Roth account. What do I need to do?” Watch out. It’s a trick question. You don’t have enough information to give an answer.

Do not assume that because an employee is asking to open a Roth account that they are looking to open a 403(b) Roth account.

Here’s why.  

There are two different kinds of Roth accounts that public school employees may participate in: the Roth 403(b) tax-sheltered annuity and a Roth IRA. While both are after-tax retirement savings accounts, they are very different, and you must understand the difference in order to help the employee.

Roth 403(b) tax-sheltered annuity

  • The Roth 403(b) is only offered through the district/employer and is always payroll deducted. There is no other way to make ongoing Roth 403(b) contributions. (The district’s plan document will indicate if Roth 403(b) contributions are allowed.)
  • An employee must always fill out a Salary Reduction Agreement (SRA) in order to have 403(b) contributions deducted from their paycheck.
  • The Roth 403(b) has strict requirements regarding withdrawals. The only access they have is with a qualifying event.
  • Employees may contribute a maximum of $17,500 in 2014 to a Roth 403(b) account. Two catch- up provisions may allow employees to contribute more if they meet the requirements and the plan allows.

Roth IRA

  • The Roth IRA is NOT an employer-sponsored retirement plan, but if your district participates in our Trust Advantage™ program, employees may make contributions through payroll deduction.
  • IRA contributions may also be made in other ways (i.e., lump sum checks throughout the year or electronic transfer of funds from a bank account).
  • An employee does NOT fill out a SRA. Participating Trust Advantage districts will require employees to fill out a payroll deduction authorization form specifically designed for this purpose.
  • While the Roth IRA is meant to be a retirement savings account, withdrawal rules are not as strict as the Roth 403(b). Early withdrawal penalties may not apply to certain distributions. (“See Roth IRA Withdrawal Options” brochure.)
  • In 2014, individuals may contribute a maximum of $5,500, or $6,500 if age 50 or older.

Prevent a problem

  • Make sure you and your employees know the difference between a Roth 403(b) and a Roth IRA.
  • Member Benefits staff can help your employees understand the different account options, discuss which type may be most beneficial for a given situation and help them set up their accounts. Feel free to send your employees to us with questions about the account types. We also work with payroll offices if there are any questions regarding how the deductions should be entered for tax reporting.
Mandatory cash-out 

Some school districts have a plan document that requires mandatory cash-out of an employee’s 403(b) account if the balance is $1,000 or less and if the employee is no longer employed with the district. Due to the mandatory cash-out rules, we must be made aware when an employee separates from service. In addition, if an employee returns to work, we must be notified to prevent the mandatory cash-out.

If you are an employer that uses our remittance reports, please indicate on our remittance report that an employee has separated from service and their last date of employment. Please use the corresponding code on the remittance report indicating the reason for termination.

If you are an employer that uses your own paper remittance report, remits electronically, remits via Trust Advantage, or remits through a third-party administrator, please e-mail the employee’s name, last date of employment, and school district to retirement@weabenefits.com.

Please provide us with this information as soon as possible after the employee terminates or retires. If you have any questions, please call 1-800-279-4030, Extension 8579.

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