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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Re: Taxability of Nonelective 403b Contributions Date: 6/21/2006 2:46 AM
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I believe that by definition this means that these are nonelective contributions to the account and are not taxable at all to me.

I'm not certain of the definition of nonelective contributions in this context, so I won't comment there. But I'm pretty sure they are not taxable to you. For now. They will be subject to income taxes when you eventually withdraw them. That is the nature of 403b plan contributions made by either the employee or the employer.

Although I am not currently paying any income tax on these contributions, by the numbers I seem to be paying social security and medicare taxes. I believe that that I shouldn't have to pay these either as these are nonelective contributions.

If the contributions are made on behalf of all eligible employees AND they are made proportionally based on your relative salary, then they probably are not subject to social security taxes. They would amount to a pension plan contribution. However, if they are not made on that basis, then the contributions might be considered compensation and subject to social security taxes.

So I guess my question is whether I am understanding the tax code currently. Am I right or wrong? Or is more information needed to really know.

I think more information is necessary. You mention a contract. And you mention a set amount being paid into the plan. What is the nature of these items?

Is the contract an individually negotiated one, or is it a union contract? Or something else? Is the set amount a fixed dollar amount, a fixed percentage of your pay, or is it set on some other basis?

I suspect the answer will hinge in these areas.

--Peter
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