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Law Offices of J. Edward Shillingburg
Newsletter Vol. 1, No. 1 September 1997
Tax-Exempts - 401(k) Plans
The 1996 pension legislation opened up 401(k) to use by tax exempt organizations,
effective after 1996. This is a very useful development for trade associations,
social clubs and social welfare organizations which had been limited to
using eligible plans under 457(b). Such plans are limited to salary reduction
deferrals of $7,500 (adjusted for cost of living after 1996), no rollovers
to IRAs and are unfunded.
However, charitable, educational and other 501(c)(3) organizations have
for many years used 403(b) plans, with salary reduction deferrals since
1979 up to $9,500 (adjusted for cost of living), rollovers to IRAs and
funded through annuity contracts or mutual lund custodial accounts.
My analysis of the usefulness of 401(k) to 501(c)(3) organizations (prepared
for presentation at the ABA Business Section's April1997 meeting and soon
to be published) indicates that 501(c)(3) organizations are likely to continue
with 403(b) plans, except for those organizations that have taxable subsidiaries
already maintalning 401(k) plans. My outline.