Cummulative Elective Deferral Limit?
I am blessed with multiple withholding vehicles; Employ 403B, 457; Solo 401K and TIRA each for myself and wife.
Accountant believes there is an annual total dollar limit. Say 100K rather than adding each Plan Limit.
Or is the overall limit adding each individual plan limit?
In diversifying our human capital, this is the first year we have these supplemental Solo 401K plans in place.
I have been unable to readily find such an IRS notation.
Thank-you!
Permalink Submitted by mk foss on Sun, 2011-04-10 23:54
There are a number of limits that may apply – the trick is putting them all together.
Denise Appleby who sometimes posts here is the expert.
There are elective deferral limits $16,500 for a 401(k) plan and for a 403(b) plan. the deferral limit for a 457(b) plan is also $16,500. Each of the limits can be increased by $5,500 for a plan participant over age 50. There is also an annual limit for defined contribution plans (like all you’ve mentioned) of $49,000 – 16,500 is part of the $49,000. The ability to add the plan limits together depends on the ownership of the entities – you own 100% of the business providing the solo 401k but you need to see how the ownership rule applies to the other plans.
Since you’re covered by a qualified plan, the TIRA would not be deductible.
This is not an easy question.
Permalink Submitted by Alan Spross on Mon, 2011-04-11 00:30
You probably have some excess contribution exposures here:
1) 402g limit of 16,500 is a per person limit, but the 457b plan can have a separate limit of 16,500. Therefore your deferrals for the solo K and the 403b must be combined with respect to the limit.
2) 415c limit is basically a per plan limit, however the 403b is considered a plan of the your majority owned business. That means your solo K and the 403b share the same 49,000 annual additions limit. The 457b again can have separate limits.
As Mary Kay indicated, your do not have a problem with the TIRA contributions except that you have modified AGI limits over which the contributions cannot be deducted (phaseouts start at 90k modified AGI). and Form 8606 would have to be filed to report non deductible TIRA contributions. Perhaps with all the other deferrals your modified AGI might be low enough to allow you to fall under the income limit.
If either of you will have reached age 50, all these plans provide catchup contribution amounts. The 403b has a couple different catchup options.
Permalink Submitted by tomtom on Mon, 2011-04-11 22:54
Thank-you for your responses.
My 403B, 457 are from employment- I have no ownership
My Solo 401 K is self employ, I am owner/ sole employee -contractor income with EIN
Wife Solo 401 K – she is sole employee of our LLC property management, salaried
Both over 55
TIRA nondeductable, then ROTH converted annually
Accountant believes there is an annual dollar upper limit on withholding across all plans
Though we are unable to find any refernece
This is the over withholding risk I am trying to assess
Regards
Permalink Submitted by Alan Spross on Mon, 2011-04-11 23:27
There is no retriction on your TIRA contributions as long as you have earned income and had not reached 70.5 when you contributed. You did not deduct the contributions so no problem there.
The 457b contributions are separate and subject to only their own limits because this is NOT a qualified plan.
That leaves the plans that DO have to be added together, and where your accountant is correct to be concerned. Since you are both over 50, the various catchup contribution limits apply, so as I said the 403b max deferral limit is very complex to determine because it has extra catchup options. If you wanted to use just the basic catchup limit of 5,500, you would have a max deferral (your own contributions) limit of 44,000 between your solo K and the 403b each. Anything more is an excess deferral and needs to be corrected.
For Sec 415c (annual additions), the total contributions including matching contributions is 49,000 over the 403b and solo K despite the fact that you have no ownership re the 403b employer. For this particular limit the 403b is considered a plan for which you ARE the owner. It is an odd rule but that is correct. The catch up contributions can be in addition to the 49,000 total between the solo K and the 403b.
The only two plans that have a combined limit are the solo K with the 403b. The other plans just need to meet their own individual limits.
Perhaps if you correct any excess deferrals over the 44k limit on those two plans, you will also eliminate any excess for the 49k limit if you have matching contributions. If not, then those matches will also be limited other than the catch up portions.
Yes, very complex to work through all of this. Perhaps your accountant can help if you do not have the breakdown of contributions to each plan. Another possibility is if you are considered a highly compensated employee with respect to the 403b plan and that plan notifies you that you contributed too much. That info can only come from the plan administrator, you cannot tell on your own.
To correct your terminology, do not refer to your contributions as “withholding”. Withholding is only used to refer to amounts deducted for federal or state taxes.
The tax code sections that apply here are 402g which is your actual contributions from your income and these are called “elective deferrals”. And section 415(c) refers to “excess annual additions” which is the 49,000 per plan limit from all contribution sources. The main kicker here is that you have to combine the 403b and the solo K for this limit, ie treating them as one plan even though they are not.
Permalink Submitted by tomtom on Sun, 2011-04-17 16:24
Thank-you !
Even with review of the Ed Slott Sept 2008 Advisor Newsletter ( a gem of information ) this is murky.
The Tables seem to isolate these plans (403B and Solo 401K) based on “ownership”.
I am grateful for your guidance.
My company side contributions (20% Schedule C gross or net?) to the Solo 401K; are these in addition to the
Elective Deferral Limit?
Regards
Permalink Submitted by Alan Spross on Mon, 2011-04-18 03:15
The side business solo K plan is subject to one 402g elective deferral limit with the 403b plan of 16,500. However, catchup contributions are not subject to this limit, and you can add another 5,500 for the SE business. The 403b has two catchup options, one for 15 year employees and another for anyone age 50 of 5,500. The 20% of of Sch C is not a factor unless you are using a SEP IRA instead of a solo K.
There is a separate 415c limit that applies generally per plan, but for plans of a solo owned business the 49,000 415c limit considers the 403b plan to be another plan of the business owner. Therefore you have a limit of 49,000 for the total annual additions to both plans. Again, catchup contributions can be in addition to the 49,000.
Permalink Submitted by tomtom on Thu, 2011-04-21 13:49
I am humbled by the nuances of these deferral limits.
And I like to think I have a grasp of such planning!
Thank-you for attending to my questions.
Perhaps putting my anticipated deferrals down I can be assured to NOT over defer in 2011…
403B: 16,500. (employee deferral) , 6,000. (match), 5,500. (additional catch-up, 56 yo)
Solo401K: 16,500. (self employ deferral)
I anticipate my Solo401K company side contributions to be 10,000. (total deferral both 403B/ Solo401K of 49,000.)
Is this match a % of schedule C (gross or net ?), or a straight match (no %)?
May I contribute a further 5,500. catch-up addition to my Solo401K?
Finally, once my self-employ grows to be my only income, can my Solo401K company match be 33,500. ?
You have helped me define my terms, gather insight into these plan limits.
I am the first client my accountant has with a Solo401K.
As we all take more responsibility for retirement planning I anticipate more Solo401K will be established.
Once the terms are defined, and the deferral limits acknowledged, this is an inexpensive vehicle to defer self-employment earnings.
Regards
Permalink Submitted by Alan Spross on Thu, 2011-04-21 20:14
The elective deferral limit (Sec 402g) is 16,500 max for all your elective deferral plans other than the 457b. That means you are limited to 16,500 combined between the solo K and 403b. The elective deferral limit is a per person limit. Likewise, your 5,500 catchup contribution it the total allowed for all your elective deferral plan. I believe if you qualify for the additional 15 year employee special catchup for the 403b plan, the amount of that particular catchup can be added.
The profit sharing contribution for the solo K is based on 20% of your net self employment income (Sch C %) unless the plan calls for a lower limit.
Therefore, the 415c limit of 49,000 will not come into play, over the 403b and solo K combination of allowed contributions:
1) 16,500 elective deferral combined
2) 5,500 single catch up contribution (does not apply to the 49,000 limit)
3) 6,000 403b match (may be affected by how much you cut back on the 16,500 deferral to the 403b)
3) Profit share for solo K assumed to be 10,000
Totals to 32,500 subject to the 49,000 limit and 5,500 not subject to that limit.
Not being able to defer 16,500 to each plan appears to be what is making the 49,000 limit a moot point.
Might also qualify for the special 15 year catch up provision for the 403b? If so that can be added.
Permalink Submitted by tomtom on Fri, 2011-04-22 04:18
YESSS !!
I get it ! Thank-you !
I also have reviewed Pub 560.
Hearing it, reading it, working through my proposed savings has finally settled through this thick skull.
Do not over defer !
Do not jeopardize the Qualified Plan !!
I understand my Employer Solo401K Profit Share contribution is not limited by the 415c limit.
20% net income may result in total QP savings above the 415c limit.
I better get to work.
Regards