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February 23, 2009

Exclusion Allowance

Your Guide

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Definition

Also referred to as the maximum exclusion allowance (MEA).

The excess, if any, of —

(i) The amount determined by multiplying (a) 20 percent of the employee’s includible compensation in respect to the taxable year, by (b ) the employee’s total number of years of service as of the close of such taxable year, over

(ii) The aggregate of (a) the amounts which have been contributed by the employer for annuity contracts for the employee and which were excludable from the gross income of the employee for any taxable year prior to the taxable year for which the exclusion allowance is being determined, and (b ) the amounts of compensation excludable from the gross income of the employee under section 457(a) (relating to eligible State deferred compensation plans) for any prior taxable year that is taken into account as a year of service under paragraph (f) of this section. Treas Reg §1.403(b)-1(d)

Referring Cite

IRC § 403(b)(2)- Now repealed

Additional Helpful Information

  • The exclusion allowance was repealed effective for years beginning 01/01/2002 under EGTRRA.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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