Who Gets to Set the Year for Section 415 Limit Purposes?

Q: I just heard from my recordkeeper that, even though our 403(b) plan uses a calendar year for 415 limit purposes, that a plan participant can actually choose his/her own year for 415 limit purposes! Can this possibly be true?

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: As unlikely as it sounds, it is true. Although, in the Experts’ experience, it is rare that this actually happens. This is all due to a little-known Treasury Regulation, section 1.415(j)-1(e), which states the following:

(e) Limitation year for individuals on whose behalf section 403(b) annuity contracts have been purchased. — The limitation year of an individual on whose behalf a section 403(b) annuity contract has been purchased by an employer is determined in the following manner.

(1) If the individual is not in control of any employer (within the meaning of § 1.415(f)–1(f)(2)(ii)), the limitation year is the calendar year. However, the individual may elect to change the limitation year to another twelve-month period. To do this, the individual must attach a statement to his or her income tax return filed for the taxable year in which the change is made. Any change in the limitation year must comply with the rules set forth in paragraph (d) of this section.

(2) If the individual is in control of an employer (within the meaning of § 1.415(f)–1(f)(2)(ii)), the limitation year is the limitation year of that employer.

Thus, if an employee is NOT in control of any employer (which is usually the case), the year used for calculating the 415 limit is the calendar year, UNLESS an individual attached a special statement to his/her income tax return changing the year to a different 12-month period. As noted, in the Experts’ experience, this is a truly a rare occurrence, but it can happen.  

Having said this, in nearly all cases, an employee’s 415 limit will be calculated on a calendar year basis. A notable exception is when an employee is in control of an employer, when the 415 limit will be calculated using the limitation year of the employer. In your case, this would still be the calendar year, but for other employers, it could be a non-calendar year plan year, depending on plan document language.

 NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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