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Greetings, Mdebar, and welcome. You asked:

Okay, so I found out that my employer (University of California) would let grad students (that's me) contribute to a 403(b), and I got everything set up. When I asked them for my contribution limit, they told me it was $4250 for this year (I'm assuming their calculation is based on my past year's salary).

This year, I'm on a fellowship, with a small additional salary. So the salary that I get from payroll is only about $8000. I set up 60% of the check to go in for the rest of the year (comes out to about $3500 by December, since I had no account until June)

My Questions:

1) Can I count my fellowship when calculating the limit. (The amount on the YTD salary doesn't include it, but can I argue that since the fellowship check was signed by the same entity that it's part of my salary?) (please, please say yes ;)

Your contribution to the 403b must come from deferred wages. I doubt highly that a fellowship falls into that category. Instead, I believe it is an allowance. For taxation purposes, it's reportable as income, but it still doesn't qualify as part of your earned compensation for IRA purposes or for defined contribution plan purposes. You should double-check that concept with your plan administrator or Human Resources folks to be sure.

2) Is my contribution limit affected? (I think it's 16% of this years salary, or $1280, but I may be way wrong)

2) If so, how can I calculate my (pre-tax) contribution limit?

By law your overall pretax contribution to the 403b is limited to the lesser of 25% of your pay or $10K. If you earn $8K, then your contribution is limited to 25%, or $2K this year. Be aware that the plan itself can restrict you to a lesser percentage. That's also something you need to check out with your employer. It very well may be the 16% you think it is.

4) Payroll says that when you hit your limit, they'll stop shunting money into the 403(b) from your check. Can I sit back and wait for their limit ($4250 if they don't revise it) to be reached, or do I have to watch it myself and stop contributing when I reach the limit? (I'm assuming it's my responsibility too...)

While you are always personally responsible for ensuring you don't over-contribute to the plan, most automated payroll systems have built-in software checks to ensure you don't exceed either the percentage or the absolute dollar contribution limit in the year. For safety's sake, though, you should keep watch on it.


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