SEP plus 403b maximum
I have a client who is a very highly compensated Dean and has about $42,000 contributed to her 403b plan (employer plus employee)
She just received a large bonus from a company she owns and will receive a 1099 on it.
The September issue states that 403b plus SEP is limited to $49k total if the “owner” of the 403b is the same as the owner of the SEP plan business. Technically, she is not the owner of the 403b. The University is!
Also, It seems that with the new regs on 403b that they are like 401ks now. With 401k’s, the client can put in $49k to the SEP plus $49k to the 401k.
Little help?
Permalink Submitted by Alan Spross on Thu, 2009-12-10 05:05
The Section 415c annual additions limit of 49,000 applies per employer. What you would not expect is a special rule that states that for 403b plans, the employee is treated as the employer, forcing the 403b contributions to be combined with SEP IRA contributions where the SEP participant is the business owner.
Therefore, the Sept issue is correct. This is also confirmed on p 5 of Pub 571.
It is also true that the new 403b Regs make them much like 401k plans. So now I need to do some research to determine if the new Regs do anything to change the above situation, because a 401k not controlled by the SEP owner would result in two separate 415c limits of 49,000 (plus catchups). Will try to confirm either way sometime tomorrow.
Permalink Submitted by BruceM on Wed, 2009-12-16 03:59
Alan
I’ve seen this discussion before, and I think what the IRS is saying is if the employee owns more than 50% of the non-profit company offering the 403(b) and the same individual makes contributions to any tax favored plan held through self employment, then the two must be aggregated.
From IRC Sec 415(k)(4)
[i] Special rules for sections 403(b) and 408
For purposes of this section, any annuity contract described in section 403(b) for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under subsection (b) or (c) of section 414 (as modified by subsection (h)). For purposes of this section, any contribution by an employer to a simplified employee pension plan for an individual for a taxable year shall be treated as an employer contribution to a defined contribution plan for such individual for such year. [/i]
And Sec 414 (b) & (c) concern defining commonly held control groups and majority ownership in partnerships and proprietorships.
And all of the descriptions I’ve read on the updated 403(b) regs has to do with the requirement that plans be in writing using the IRS model plan, information sharing agreements between vendors, and so forth. I haven’t read of any new contribution limitations that didn’t already exist.
What do you think?
BruceM
Permalink Submitted by Alan Spross on Wed, 2009-12-16 05:11
Hi, Bruce.
I too was looking for something in the code that clearly enumerated this. My understanding has been that the amount of control the 403b participant had with the employer was immaterial, but could not locate any code section that clearly said this. In fact, what you posted seems to suggest otherwise. However, tonite I located the following explantion of 415(c) limits by TIIA CREF explaining this as I had understood it, but I still can’t get a good read on it in the IRS Regs or code. The TIIA CREF comment about the annuity holders almost seems to be a throwback to the early days before mutual funds were added to the approved investment options:
http://www.tiaa-cref.org/administrators/resources/news/news_admin_12_559…
If so, it seems like this was begging a change with the new 403b Regs, but no evidence of that.
Permalink Submitted by Martin Helmer on Thu, 2009-12-17 00:22
Yes the 2 plans are aggregated, and 415(k)(4) is the reason, though it could be clearer. The new 403(b) regs give a subtle and arguable indication of this at 1.403(b)-4(b)(2)……….’contributions to 403(b) contracts are generally aggregated with contributions of other arrangements in applying section 415.’
Can’t give you chapter and verse at this moment, but the 403(b)(7) nonannuity investments are treated just like 403(b) annuities for virtually all if not all purposes of the 403(b) rules.
Permalink Submitted by BruceM on Thu, 2009-12-17 21:39
Martin and Alan
Thanks for the feedback. Yes, this would seem to be a unique situation that will be important for moonliting educators or hospital employed physicians, particularly those trying to max out plan contributions, to be aware of.
BruceM