| Your limit is calculated
using a three-step process under Internal Revenue Code (IRC)
guidelines. The result is what you are allowed to contribute to the Retirement Plan
in total. By subtracting the 5% you contribute to the Basic Plan, the amount you can make
in supplemental contributions remains.
Step 1:
Annual 403(b) Limit of $15,500
The annual 403(b) limit is $15,500. If your salary is less
than $15,500, your limit is your annual salary. However, if
you earn less than $15,500 you cannot contribute your entire
salary because you must still pay the 7.65% FICA (Social Security
and Medicare) tax. You must also pay for deductions for other
benefit plans as well as convenience items such as parking.
Step 2: Are You Age 50 or Older?
If you are age 50 or older by December 31, 2008, your limit
is increased to $20,500. This additional limit is automatically
available to staff age 50 or older each year. See the Total Possible
Limit chart.
Step 3: Do You Have the Equivalent of 15 Years of Service?
If you have the equivalent of 15 years of service, you may qualify for an increase
of up to $3,000 in your limit according to the IRC guidelines. A year of service is defined
as a full year of service based on 100% effort, not a calendar year. For example, two
years of service at 50% effort equals one year of service according to IRC guidelines.
However, this is not an automatic catch up. To be eligible, your annual contribution to
the Retirement Plan must be less than $5,000 per year on average during your
participation in the Plan. In other words, if you have contributed your maximum
limit in past years, you most likely will be ineligible.
This catch up was designed by the IRC for employees who had not contributed a lot to
their employer retirement plans during the early years of employment. It allows these
employees at the 15-year point to make up for their smaller contributions by adding
up to $3,000 to their limit.
The catch up also expires. An eligible employee may make use of this higher limit
for up to five years, after which it expires. This amount is not scheduled to increase.
IRS / SRA Max Limit Handbooks
You can find more detailed information on how your contribution limit for the retirement plan is calculated by reading the booklets available at benefits.umich.ed/plans/retire/maxlimit.htm.
Next:
Your Total Limit
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