Max SEP with 403b and 457
Client (over 50) works for a public university and has a 403b and 457 plan. Per the W-2, elective deferrals to the 403b were $18,472 and $13,220 for the 457, for a total of $31,692. He also has an unrelated Schedule C with a SEP. The maximum SEP contribution calculated is $25,586.
Is the SEP limited to $49,000 less the 403b and 457? This would limit the SEP contribution to $17,308.
Permalink Submitted by Peter Lingane on Thu, 2011-04-14 15:00
Most advisers, including myself, are less conversant with 403b and 457 plans. That’s probably why this question has sat so long unanswered. My suggestion is to contact someone who advises with respect to these plans as the details can be complex and different from the 401k rules.
In general, elective deferrals are limited to $16,500 (the 402g limit). The limit is a bit higher for those fifty and older. If an individual contributes to more than one 401k,
SARSEP or SIMPLE plan, the sum of all deferred contributions must not exceed the 402g limit. However, contributions to 457 plans enjoy a separate 402g limit. So it is reasonable that someone would be able to contribute $32K to a 401k and a 457 plan.
Total contributions to any plan are limited to $49K (the 415 limit) plus any age fifty catch up. If an employer has two plans, there is one 415 limit. The maximum contribution to all plans at the same university is probably the 415 limit plus catchup.
If there are two employers, there are separate 415 limits. Thus it should be possible to contribute another $49K to a Sch C SEP assuming enough compensation.
Please confirm with an expert.
Permalink Submitted by [email protected] on Thu, 2011-04-14 17:20
Thanks for the response Peter. It is tough to find someone with knowledge of all 3 types of plans. The excerpt below is from IRS Pub 560 under SEP Contributions:
[color=#4000FF]More than one plan. If you contribute to a defined contribution plan (defined in chapter 4), annual additions to an account are limited to the lesser of $49,000 or 100% of the participant’s compensation. When you figure this limit, you must add your contributions to all defined contribution plans. Because a SEP is considered a defined contribution plan for this limit, your contributions to a SEP must be added to your contributions to other defined contribution plans.[/color]
This leads to the question of whether a 403b and 457 plan are considered defined contribution plans.
Jeff
Permalink Submitted by Peter Lingane on Thu, 2011-04-14 19:59
A 403b plan and a 457 plan established by a non religious organization are defined contribution plans.
The Pub is poorly phrased. There is one 415 limit for all defined contribution plans maintained [b]by the same employer[/b]. But you are talking about two employers: the University and self-employment. The University/457/403b plans do not affect the amount that can be contributed to the SchC/SEP.
Permalink Submitted by Alan Spross on Thu, 2011-04-14 21:44
Except that there is a special rule for the 415c limit that makes a 403b plan (but not a 457) a plan of the owner’s SE business only for purposes of this limit. Therefore the 49,000 limit needs to be reduced by at least 16,500. due to the 403b deferral. Catchup contributions can be in addition to the 49,000 limit. But 32,500 is still not close to the 25,586 figure. Strange rule. I do not know what the rationale is for it.
I agree that Pub 560 does not appear to correctly characterize the affect of multiple plans.
Permalink Submitted by Peter Lingane on Fri, 2011-04-15 01:43
Alan,
Are you saying that if a university professor makes an elective deferral of $16500 to his 403b plan, his/her contribution to a self employed SEP plan (not SARSEP) is limited to the smaller of 25% of compensation or the 415c limit less $16500? I was not aware that there is ever an interaction between the 415c limits of plans of multiple employers, assuming that the employers are independent of one another.
Might you be confusing the rule that limits elective deferrals to 401k, 403b, SIMPLE and SARSEPs to a single 402g limit?
Permalink Submitted by [email protected] on Fri, 2011-04-15 02:08
I’m just glad I’m not the only one that finds this situation incredibly confusing.
Permalink Submitted by Alan Spross on Fri, 2011-04-15 02:37
Peter,
Here is a link explaining this aggregation of limits issue for 415c involving 403b plans. It adds further complexity to the the multiple plan can of worms that already exists:
http://www.tiaa-cref.org/public/about/news/admin0922_133.html
Permalink Submitted by Peter Lingane on Fri, 2011-04-15 04:44
Thank you Alan. I learned something.
The employee and not the employer is considered to control a 403b annuity. Contributions to a 403b annuity are therefore not aggregated with contributions to other defined contribution plans maintained by the same employer. However, contributions to all 403b plans by all employers are aggregated and they are also aggregated with other defined contribution planse sponsored by an employer that the employee controls.
The example in Reg §1.415(f)-1(f) is “Thus, for example, if a doctor is employed by a non-profit hospital to which section 501(c)(3) applies and which provides him with a section 403(b) annuity contract, and the doctor also maintains a private practice as a shareholder owning more than 50 percent of a professional corporation, then any qualified defined contribution plan of the professional corporation must be aggregated with the section 403(b) annuity contract for purposes of applying the limitations of section 415(c) and §1.415(c)-1. For purposes of this paragraph (f)(2), it is immaterial whether the section 403(b) annuity contract is purchased as a result of a salary reduction agreement between the employer and the participant.”
It would appear that contributions to the University 403b and 457 plans have separate 415c limits but that contributions to the University 403b plan and to the Sch C/SEP share a single 415c limit.