2019 Contribution Limits
In the case of employees and employers, the combined annual contribution limits for tax year 2019 are:
The lesser of $56,000 or 100% of the employee’s “includible compensation,” which means the housing allowance paid to a minister is NOT included, per IRS Code 415(c).
It is important to note that “includible compensation” is defined by the IRS as follows:
Taxable compensation reported in Box 1 of Form W-2, plus
Salary reduction contributions to a 403(b) or 401(k) plan, plus
Elective deferrals to a Section 125 cafeteria plan, plus
Elective deferrals to a 457 plan, plus
Contributions to qualified transportation fringe benefit plans.
Here is an example of how “includible compensation” is calculated:
If a person has $24,000 reported in Box 1 on Form W-2, has contributed $2,400 to a 403(b) plan through salary reduction, and has deferred $2,600 to a flexible spending account under a Section 125 cafeteria plan, his/her includible compensation will total $29,000. Therefore, his/her combined annual contribution is capped at $29,000 since it is less than $56,000.
Annual contributions can come from three sources:
1. Church/Employer Contributions (Plan classification type “D”)
Paid and remitted by the church/employer as a fringe benefit (i.e. above and beyond the employee’s salary or regular wages)
Not reported to the employee as income on Form W-2
2. Participant Before-Tax Contributions (Plan classification type “A”)
Subject to a limit of $19,000 for tax year 2019
Participants over 50 years of age are permitted to increase their participant before-tax contribution limit by $6,000 for tax year 2019. This means they can contribute $19,000 plus $6,000 for a total of $25,000. It is also important to note that the annual contribution limit is increased to $62,000 or 100% of includible compensation, whichever is the lesser. IRS Code 414(v)
Paid (via salary reduction) by the participant and remitted by the church/employer based on a salary reduction agreement between the employer and employee. The salary reduction agreement, which must be kept on file by the employer, allows the participant to reduce currently taxable income and, therefore, current tax liability. IRS Code 402(g)
Reported on Form W-2 in Box 12 (Code E), but NOT included in Box 1 as a part of wages. For non-credentialed employees, this amount would, however, be reported and taxed as a part of Social Security Wages and Medicare Wages in Boxes 3 and 5.
3. Participant After-Tax Contributions (Plan classification type “G”)
Typically paid by the participant on a personal check
It could also be remitted on a church/employer check if withheld from net pay (after taxes) rather than from gross pay
Combined contributions from all three sources cannot exceed the annual contribution limit of $56,000 (or $62,000 if the participant is over 50 years of age).
It is also important to note that a qualified rollover from another retirement plan does not count against the annual contribution limit.