Maximum contribution for 403B, 457 & SEP IRA combined?

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vrichardson
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Maximum contribution for 403B, 457 & SEP IRA combined?

Postby vrichardson » Mon Mar 20, 2017 3:20 pm

I am over 50.
I am contributing $24,000 under 403b. I am contributing $24,000 under 457.

If I have Schedule C income (separate job) of $80,000, given the above, how much can I contribute to a SEP-IRA?

And can I still make a non-deductible Traditional IRA contribution of $6,500?

Thanks in advance.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Maximum contribution for 403B, 457 & SEP IRA combined?

Postby Spirit Rider » Mon Mar 20, 2017 7:41 pm

The 457 is a non-qualified plan an has its own employee deferral limit and does not interfere with the contributions to the 403b and SEP IRA.

The SEP IRA only permits employer contributions, so it does not interfere with the 403b deferral. However, a 403b is considered controlled by the participant and is aggregated with any one-participant plan such as a SEP IRA. The SEP IRA contribution would be subject to the annual limit (2016 = $53K, 2017 = $54K) - 403b employee deferral - 403b employer contribution. The SEP IRA contribution is also limited to 20% of net self-employment income = Schedule C net business profit - 1/2 SE tax. This will be somewhat less than $16K depending on business expenses. The allowed SEP IRA contribution will be the lesser of the two limits.

Everyone can make a traditional IRA contribution. Only the deduction is limited by income. If you are making a non-deductible IRA contribution in order to make a backdoor Roth contribution, you should be aware that the SEP IRA contribution will raise havoc with that. It will force a prorata taxation of any Roth conversion.

You have two choices to avoid this. If your plan allows incoming IRA rollovers, you could make the SEP IRA contribution and roll it into the 403b or 457b. If not you could open a Solo 401k and make the same employer contribution as you would with a SEP IRA. If this is for 2016 tax year it is too late for Solo 401k, but you could open and fund SEP IRA for 2016 then adopt a Solo 401k for 2017 and beyond and roll the SEP IRA into the Solo 401k by 12/31 and preserve the ability to do backdoor Roth contributions.

MN Finance
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Re: Maximum contribution for 403B, 457 & SEP IRA combined?

Postby MN Finance » Mon Mar 20, 2017 7:43 pm

The contribution are separate, so you can also contribute 20% of your 80k and 6500 to you IRAs

MN Finance
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Re: Maximum contribution for 403B, 457 & SEP IRA combined?

Postby MN Finance » Mon Mar 20, 2017 7:44 pm

Spirit Rider wrote:The 457 is a non-qualified plan an has its own employee deferral limit and does not interfere with the contributions to the 403b and SEP IRA.

The SEP IRA only permits employer contributions, so it does not interfere with the 403b deferral. However, a 403b is considered controlled by the participant and is aggregated with any one-participant plan such as a SEP IRA. The SEP IRA contribution would be subject to the annual limit (2016 = $53K, 2017 = $54K) - 403b employee deferral - 403b employer contribution. The SEP IRA contribution is also limited to 20% of net self-employment income = Schedule C net business profit - 1/2 SE tax. This will be somewhat less than $16K depending on business expenses. The allowed SEP IRA contribution will be the lesser of the two limits.

Everyone can make a traditional IRA contribution. Only the deduction is limited by income. If you are making a non-deductible IRA contribution in order to make a backdoor Roth contribution, you should be aware that the SEP IRA contribution will raise havoc with that. It will force a prorata taxation of any Roth conversion.

You have two choices to avoid this. If your plan allows incoming IRA rollovers, you could make the SEP IRA contribution and roll it into the 403b or 457b. If not you could open a Solo 401k and make the same employer contribution as you would with a SEP IRA. If this is for 2016 tax year it is too late for Solo 401k, but you could open and fund SEP IRA for 2016 then adopt a Solo 401k for 2017 and beyond and roll the SEP IRA into the Solo 401k by 12/31 and preserve the ability to do backdoor Roth contributions.

The 415 limit only applies to the same employer plan.

Spirit Rider
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Re: Maximum contribution for 403B, 457 & SEP IRA combined?

Postby Spirit Rider » Mon Mar 20, 2017 7:56 pm

MN Finance wrote:The 415 limit only applies to the same employer plan.

That is true, but as I pointed out a 403b account is considered controlled by the participant and is therefore aggregated with an individual SEP IRA or Solo 401k. You are considered the employer for both plans.

MN Finance
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Re: Maximum contribution for 403B, 457 & SEP IRA combined?

Postby MN Finance » Mon Mar 20, 2017 8:05 pm

Spirit Rider wrote:
MN Finance wrote:The 415 limit only applies to the same employer plan.

That is true, but as I pointed out a 403b account is considered controlled by the participant and is therefore aggregated with an individual SEP IRA or Solo 401k. You are considered the employer for both plans.

I disagree that the SEP contribution is limited in any way by the 403b contribution. I don't know what a Google search will find but suspect mixed results. In the same way that a 401k and 403b have combined EE deferral limits, but separate ER limits (and separate 415 limits)

Spirit Rider
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Re: Maximum contribution for 403B, 457 & SEP IRA combined?

Postby Spirit Rider » Mon Mar 20, 2017 8:28 pm

MN Finance wrote:
Spirit Rider wrote:
MN Finance wrote:The 415 limit only applies to the same employer plan.

That is true, but as I pointed out a 403b account is considered controlled by the participant and is therefore aggregated with an individual SEP IRA or Solo 401k. You are considered the employer for both plans.

I disagree that the SEP contribution is limited in any way by the 403b contribution. I don't know what a Google search will find but suspect mixed results. In the same way that a 401k and 403b have combined EE deferral limits, but separate ER limits (and separate 415 limits)

You can disagree, but that would not be correct. This is different than the 402g employee deferral limit, which is shared between all qualified plans (SIMPLE IRA, 401k, 403b). A 403b and a SEP IRA of the same person are most definitely subject to the 415c annual addition limit.

See 26 CFR 1.415(f)-1 - Aggregating plans, (f) Section 403(b) annuity contracts, (1) In general

(i) In general. Where a participant on whose behalf a section 403(b) annuity contract is purchased is in control of any employer for a limitation year as defined in paragraph (f)(2)(ii) of this section (regardless of whether the employer controlled by the participant is the employer maintaining the section 403(b) annuity contract), the annuity contract for the benefit of the participant is treated as a defined contribution plan maintained by both the controlled employer and the participant for that limitation year. Accordingly, where a participant on whose behalf a section 403(b) annuity contract is purchased is in control of any employer for a limitation year, the section 403(b) annuity contract is aggregated with all other defined contribution plans maintained by that employer. In addition, in such a case, the section 403(b) annuity contract is aggregated with all other defined contribution plans maintained by the employee or any other employer that is controlled by the employee. 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.

MN Finance
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Re: Maximum contribution for 403B, 457 & SEP IRA combined?

Postby MN Finance » Mon Mar 20, 2017 9:10 pm

I'm not sure I've ever been wrong before, this may be a first, but I'll ask my wife.

I'm pretty surprised by this and after searching Google there are absolutely differing opinions (Ed slot, Fairmark agree with me). I actually used to work with HCEs who participated in multiple non profit plans and frequently hit all the limits and don't recall ever seeing this (nor did the attorneys on staff), though that was 10yrs ago. However, can't argue with your quoted reference.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Maximum contribution for 403B, 457 & SEP IRA combined?

Postby Spirit Rider » Mon Mar 20, 2017 9:45 pm

MN Finance wrote:I'm not sure I've ever been wrong before, this may be a first, but I'll ask my wife.

I'm pretty surprised by this and after searching Google there are absolutely differing opinions (Ed slot, Fairmark agree with me). I actually used to work with HCEs who participated in multiple non profit plans and frequently hit all the limits and don't recall ever seeing this (nor did the attorneys on staff), though that was 10yrs ago. However, can't argue with your quoted reference.

Where does Ed Slot and Fairmark agree with you? Are they specifically addressing the issue of 403b and participant owned employer retirement plans. Or is this a generic statement that employee deferrals are across all qualified plans and the annual addition limit is per employer. I know for a fact that Ed's newsletter has specifically outlined this restriction. Alan who regularly posts here, irahelp and fairmark can confirm this.

This is also addressed in IRS Publication 571, Chapter 3, page 4, Limit on Annual Additions

Participation in a qualified plan. If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control to determine the total annual additions.

Alan S.
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Re: Maximum contribution for 403B, 457 & SEP IRA combined?

Postby Alan S. » Mon Mar 20, 2017 9:55 pm

MN Finance wrote:I'm not sure I've ever been wrong before, this may be a first, but I'll ask my wife.

I'm pretty surprised by this and after searching Google there are absolutely differing opinions (Ed slot, Fairmark agree with me). I actually used to work with HCEs who participated in multiple non profit plans and frequently hit all the limits and don't recall ever seeing this (nor did the attorneys on staff), though that was 10yrs ago. However, can't argue with your quoted reference.


The cites posted by Spirit Rider are correct.

I posted this on Fairmark over a year ago. If you have any threads on Slott's site or Fairmark that need correction, please post them and I will edit them:

Re: Self employed employer contribution to SEP IRA
Posted by: Alan S., December 13, 2015 07:35PM
53k is the max total for both plans combined.

The 415c annual additions limit is a per employer limit, BUT there is an odd rule that treats the 403b as an EMPLOYEE owned plan. Therefore, the 403b and the SEP IRA are considered plans of the same employer and there is only one 53k limit available. The max possible SEP contribution would be 53k less the total contribution amount made to the 403b. Of course, the SEP contribution would be even less if there was insufficient net earnings from self employment.

inittowinit
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Re: Maximum contribution for 403B, 457 & SEP IRA combined?

Postby inittowinit » Mon Mar 20, 2017 10:09 pm

Gosh I love this board...

Gleevec
Posts: 247
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Re: Maximum contribution for 403B, 457 & SEP IRA combined?

Postby Gleevec » Mon Mar 20, 2017 11:01 pm

Alan S. wrote:
MN Finance wrote:I'm not sure I've ever been wrong before, this may be a first, but I'll ask my wife.

I'm pretty surprised by this and after searching Google there are absolutely differing opinions (Ed slot, Fairmark agree with me). I actually used to work with HCEs who participated in multiple non profit plans and frequently hit all the limits and don't recall ever seeing this (nor did the attorneys on staff), though that was 10yrs ago. However, can't argue with your quoted reference.


The cites posted by Spirit Rider are correct.

I posted this on Fairmark over a year ago. If you have any threads on Slott's site or Fairmark that need correction, please post them and I will edit them:

Re: Self employed employer contribution to SEP IRA
Posted by: Alan S., December 13, 2015 07:35PM
53k is the max total for both plans combined.

The 415c annual additions limit is a per employer limit, BUT there is an odd rule that treats the 403b as an EMPLOYEE owned plan. Therefore, the 403b and the SEP IRA are considered plans of the same employer and there is only one 53k limit available. The max possible SEP contribution would be 53k less the total contribution amount made to the 403b. Of course, the SEP contribution would be even less if there was insufficient net earnings from self employment.


Does the limit above apply equally to SEP IRA and Solo 401k employer contributions, or just SEP IRA?

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Maximum contribution for 403B, 457 & SEP IRA combined?

Postby Spirit Rider » Tue Mar 21, 2017 12:12 am

Gleevec wrote:Does the limit above apply equally to SEP IRA and Solo 401k employer contributions, or just SEP IRA?

Yes, it would apply to any employer retirement plan (SEP IRA, SIMPLE IRA, 401k) where you are > 50% owner. This would be true whether it was an owner-only plan or a plan with eligible employees.


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