401(k) / 403(b) limits?

Client is a high earner who has multiple active retirement plans. A 401(k) through her W-2 day job that she maxes out, a solo 401(k) that feeds off her Schedule C business, and a 403(b) that another employer contributes to.

My understanding is that the 401(k) limits are combined. Example: client contributes $19k to her employer's 401(k) as her employee deferral. Employer contributes $15k as well. Now she can only contribute up to $22k in employer profit sharing to her solo 401(k) for the 2019 tax year. Employee deferrals to the solo 401(k) are off the table as she already maxed that out through another 401(k) plan.

My question: does the other employer contribution to a 403(b) plan throw another wrinkle in the equation? For example, if $5k was contributed to the 403(b) does that reduce her potential solo 401(k) employer profit sharing contribution to $17k?

My question: does the other employer contribution to a 403(b) plan throw another wrinkle in the equation? For example, if $5k was contributed to the 403(b) does that reduce her potential solo 401(k) employer profit sharing contribution to $17k?

The elective deferrals are aggregated accross all 401k's and the 403(b). IRC 402(g)(3). (Only a 457 would not be aggregated as it is a deferred comp plan).

I believe the 415 limts apply to controlled business and affiliated groups. This is not your case, so I think the employer contributions would not be aggregated accross the 3 plans.

I believe that the 403(b) and 401(k) contributions from everyone are combined when evaluating whether 415 limits have been exceeded.

Client is a high earner who has multiple active retirement plans. A 401(k) through her W-2 day job that she maxes out, a solo 401(k) that feeds off her Schedule C business, and a 403(b) that another employer contributes to.

My understanding is that the 401(k) limits are combined. Example: client contributes $19k to her employer's 401(k) as her employee deferral. Employer contributes $15k as well. Now she can only contribute up to $22k in employer profit sharing to her solo 401(k) for the 2019 tax year. Employee deferrals to the solo 401(k) are off the table as she already maxed that out through another 401(k) plan.

My question: does the other employer contribution to a 403(b) plan throw another wrinkle in the equation? For example, if $5k was contributed to the 403(b) does that reduce her potential solo 401(k) employer profit sharing contribution to $17k?

I think the wrinkle in your case is that it's a solo-k. Look at this example on the IRS site:
https://www.irs.gov/retirement-plans/40 ... ction-415c

I believe that the 403(b) and 401(k) contributions from everyone are combined when evaluating whether 415 limits have been exceeded

.

The attached article disagrees with you, see https://www.kitces.com/blog/coordinatin ... d-benefit/

The second limitation is known as the 415(c) overall limit, which is the (currently $55,000, plus any catch-up contributions) cap on the aggregate total of all contributions that go into the plan (including both salary deferral contributions by the employee, after-tax employee contributions, and any/all contributions from employers, from profit-sharing to matching contributions). However, unlike the 402(g) limit which applies once across all plans, the 415(c) overall limit applies separately for each plan.

The caveat to the overall limit, though, is that if the employers are “related” to each other (either as a parent-subsidiary or brother-sister controlled group, some combination thereof, or an affiliated service group), the overall limit (along with other employer retirement plan testing rules and requirements) is applied once across all plans as well.

The Kitces article is one year old - agree with what you said except it should be $56K per employer plan (ignoring catch up)

My question: does the other employer contribution to a 403(b) plan throw another wrinkle in the equation?

Edited - I read friend's email response to fast

Friend dealt with this a couple of years ago. I called her to refresh my memory. It was a big deal to clean up the mess. The issue was employer's maxed out 403(b) contribution and taxpayer's maxed out Sch C 401(k) deferral.

Enter 401(k) contribution and 403(b) contribution maximums via W-2s in your software. Lacerte generates a diagnostic. What does your software say?

Enter 401(k) contribution and 403(b) contribution maximums via W-2s in your software. Lacerte generates a diagnostic. What does your software say?

I did this in Proseries and got the 402(g) diagnostic about the $18,500 elective deferal limit. However, we are talking about the 415(c) limit which includes employer contributions also not just the 402(g) limit for employee deferals.

Bottom line:
Under Section 26 cfr 1.415(f)-1(g)(1) it states:

Multi employer plan aggregated with another multi employer plan. Pursuant to section 415(f)(3)(B), multi employer plans, as defined in section 414(f), are not aggregated with other multi employer plans for purposes of applying the limits of section 415.

So, a self-employed person could have a solo 401k plan in their own business and a second 401k or 40.b plan with an unaffiliated employer. Thus exceeding the $56k limit, through 3 separate entity plans.

Thank you all for responding. It took a while to digest all of this, but it helped out tremendously.

So my understanding for this particular client is now this:

Client cannot contribute more than $19k of employee elective deferrals for the 2019 tax year across all plans per IRC Sec 402(g).

IRC Sec 415(c) generally does not aggregate total limits across all plans and a taxpayer may contribute up to $56k for the 2019 tax year in each employer's plan subject to the limitations in 402(g).

However -- as tb_in_sf noted, there's a wrinkle when it comes to 403(b) and Solo 401(k) plans. See IRC Sec 415(k)(4) and Treas Reg Sec 1.415(f)-1(f)(1).

Client is deemed to control her 403(b) plan under Sec 415(k)(4). As she is also in control of her Solo 401(k), this means these two particular plans must be aggregated under 415(c).

Revising the numbers in my OP, client contributes $19k in elective deferrals to Employer 1's 401(k), and her employer contributes $15k. This is all fine and dandy. This plan is not aggregated with the other two. The employer could take her up to the $56k limit if they wanted.

Employer 2 contributes $5k to a 403(b) for client. Her 403(b) and Solo 401(k) are aggregated under Sec 415(c) as mentioned above. The most client can contribute to her Solo 401(k) in employer profit sharing for the 2019 tax year is $51k ($56k minus $5k from the aggregated 503(b) plan).

Sounds about right?

Sounds about right?

Agree, there is a wrinkle with a 403(b) and solo 401k having to aggregate employer contributions limiting to $51K max for solo 401k in your case. But see also Treas Reg 1.415-2(d)(7) where you can combine compensation from both plans in figuring out whether you can get to the $51K.

Will do TAXMASTER thanks.

That will be helpful as Sch C net taxable income is generally $50-75k.

Not sure it will help as Solo 401k contributions limited to SE income. Note if the 415(c) limit is exceeded its the 403(b) pan that gets with the excess annual addtion. IRS audit IRM "Review any information employees must provide to the employer regarding outside employment and plan contributions."
see https://www.irs.gov/retirement-plans/40 ... ction-415c

For 2016, Professor Y elected to defer up to the maximum 403(b) dollar amount of $18,000 and to use the Age 50 Catch Up equal to $6,000. Because Professor Y has only five years of service with University X, she does not qualify for the special catch up limit under IRC Section 402(g)(7).

University X also made a non-elective employer contribution of $35,000 to the 403(b) plan on behalf of Professor Y for the 2016 year. In 2016, Professor Y contributed $24,000 to Plan Z, a defined contribution plan sponsored by her consulting business that she controls. Plan Z’s limitation year is the calendar year. Professor Y’s includible compensation from University X is $100,000. Professor Y’s compensation from her consulting business is $80,000 for the 2016 year.

The 403(b) contribution limits in effect for 2016 are as follows:

IRC Section 402(g) Elective Deferral Limit $18,000
IRC Section 414(v) Age 50 Catch Up $6,000
IRC Section 415(c) Limit $53,000
The Age 50 Catch Up is not counted toward the IRC Section 415(c) limit. The total elective and non-elective contributions to the 403(b) annuity contract for 415(c) purposes equal $53,000 ($35,000 + $18,000). Thus, the contributions to Professor Y’s 403(b) annuity contract do not exceed the IRC Section 415(c) limitation when tested separately from those made to Plan Z.

Because Professor Y controls the employer that maintains Plan Z, the IRC Section 415(c) limit also applies on an aggregated basis. The combined contributions to Plan Z and the 403(b) plan exceed the IRC Section 415(c) limit by $24,000. The excess annual addition is attributable to the 403(b) annuity contract.