This year is unique in that the total amount of pre-tax and employer contributions to the MLB Vanguard 401(k) Investment Plan could exceed the IRS limit for total contributions in one year.
A player who expects to earn a full year of service should contribute only $13,000 pre-tax and $0 post-tax if he wants to maximize his contribution for 2016.
If more than the maximum amount is contributed, the MLB Investment Plan will refund the excess contribution in December 2016 or in early January 2017, and will create tax reporting complications and further limit contribution amounts on outside retirement accasdfounts.
While some teams have been proactive in reducing the total amount of pre-tax contributions made to the Investment Plan, others have allowed the full contribution of $18,000, so it is important to review your paycheck today and make the necessary changes to avoid excess withholding. The cost of issuing any refund will be charged to the Player’s Investment Plan account and the Player will need to make sure his tax records accurately reflect any refund.
Immediate Questions You Need To Answer
- How much have you contributed to your MLB 401(k) as of your last paycheck?
- Did you elect the full contribution amount available?
How Much Should You Be Contributing To Your 401(k)?
For every quarter of “credited service” a player earns in 2016, major league baseball will contribute $10,000 to that players account for the year. A player who is on the Active List for the entire season, for example, will be credited with 4 quarters of “credited service” and will thus receive an allocation of $40,000 during the last calendar quarter of 2016. This is a tremendous benefit but has the potential to create some tax issues.
Because the tax laws limit the total amount of contributions to a Player’s account in one year to $53,000, a full year allocation of $40,000 limits the amount of a pre-tax contribution to $13,000. This is less than the allowable amount of $18,000, so it is important to consider service time when completing the Investment Plan form for the 2016 season.
A player who wishes to contribute the maximum amount in 2016 should elect the following Pre-Tax and Post-Tax contributions:
To reiterate the urgency and importance of you taking action, excess contributions will begin to kick in if not addressed before your next paycheck.
Please let us know if we can help. We are available to assist in reviewing and updating Investment Plan elections.