Investing more than $50k Limit to Tax Advantaged Accounts

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supraacumen
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Investing more than $50k Limit to Tax Advantaged Accounts

Post by supraacumen » Thu Feb 09, 2012 9:19 pm

After reading countless times on this board that you are only allowed to contribute up to $50,000 for 2012 in tax advantaged accounts, I received a very intriguing piece of information from my employer today, and I wanted to verify whether or not their statement is correct. I am able to invest in a traditional/Roth 403(b) as well as after-tax contributions to this plan (call it plan A). My employer states that I am able to contribute up to the $50k IRS limit for this plan (no issues thus far). In addition to plan A, my employer makes matching contributions to another plan (401(a)) in which I am technically eligible to make after-tax contributions here as well. The people that I was talking to then told me that I am also able to contribute another $50k (less the employer match) to this account. Thus, I would (theoretically) be able to invest $100k to tax-advantaged accounts. Is this correct, or is my benefits office misinformed?
Last edited by supraacumen on Thu Feb 09, 2012 10:08 pm, edited 1 time in total.
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wjo
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by wjo » Thu Feb 09, 2012 9:48 pm

We would have to know how plan A is categorized, but in general, I think the limitation is $50 across all accounts.

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Liquid
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by Liquid » Thu Feb 09, 2012 9:50 pm

Unless you can transfer your limited partnership (at $0) from your private equity firm.

xerty24
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by xerty24 » Thu Feb 09, 2012 10:21 pm

I thought the $50k was aggregated by employer subject to common control rules, although your situation might be slightly different than this. Certainly the IRS has thought about you setting up a second shell company to try for double the tax shelter and they're having none of it.
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supraacumen
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by supraacumen » Thu Feb 09, 2012 10:41 pm

xerty24 wrote:I thought the $50k was aggregated by employer subject to common control rules, although your situation might be slightly different than this. Certainly the IRS has thought about you setting up a second shell company to try for double the tax shelter and they're having none of it.
I agree that what I am stating sounds suspect, but I work at a very well known company, which is why I am a bit perplexed by their assertion.
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tomforshort
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by tomforshort » Thu Feb 09, 2012 11:35 pm

I have a similar question as the OP. Ultimately, the issue is that I have not been able to find out much of anything regarding the rules for 401(a) plans. Googling irs.gov for 401(a) provides very little guidance.

From what I can tell, the 401(a) plans were originally primarily government (federal or state) pension plans. Many organizations now allow employees to choose the pension option (defined benefit) or an alternative defined contribution option. In my case, I chose the latter and it is referenced as a 401(a) plan in my employer's paperwork. However, the contributions are not elective deferrals; I contribute a fixed amount, my employer matches a fixed amount of my salary, and that's it. I cannot change my contribution percentage.

On the elective deferral side, both 403(b) and 457(b) plans are available. From what I can tell, these accounts have separate contribution limits, so $17k can be contributed to both for a total of $34k pre-tax. With the contributions from the 401(a) plan above, the total could potentially exceed $50k. However, I have not been able to find any indication of whether or not the 401(a) plan contributions apply to the $50k limit (i.e., the limit on annual additions). I don't see how it could because it is not included in box 12 on my W2 form. Instead, there is just an X in box 13 under Retirement Plan.

In fact, if you check the irs.gov pages on contributions limits for the 403(b) and 457(b) plans:

http://www.irs.gov/retirement/participa ... 94,00.html
http://www.irs.gov/retirement/participa ... 95,00.html

then it does not appear that the 457(b) plan counts toward the $50k limit on annual additions either (or at least the 457(b) contribution limit page does not mention such a limit).

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supraacumen
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by supraacumen » Fri Feb 10, 2012 12:04 am

I have been doing a bit more reading, and it seems that 401(a) contributions do NOT count towards the elective deferrals of my 403(b). Furthermore, seeing that both my 403(b) and 401(a) allow for after-tax contributions, it seems reasonable that the $50k limit applies to both accounts for a grand total of $100k. I would certainly be interested in hearing other people's interpretation of this, though. Given my current income/situation there is no way that I would be able to approach doing this, but it is certainly interesting to learn about some of these "loopholes."
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by tfb » Fri Feb 10, 2012 10:09 am

supraacumen wrote:I have been doing a bit more reading, and it seems that 401(a) contributions do NOT count towards the elective deferrals of my 403(b).
True. If you don't have an option to receive the employer contribution in cash, it's not elective deferral. If you are making after-tax contributions to 401a, it's not deferral, therefore not elective deferral.
supraacumen wrote:Furthermore, seeing that both my 403(b) and 401(a) allow for after-tax contributions, it seems reasonable that the $50k limit applies to both accounts for a grand total of $100k.
Not so fast. The $50k limit applies to all defined contribution plans under the same employer. So it comes down to whether your 401a is defined contribution. What do you get from this 401a? Money invested in funds like in the other plans? Fixed interest rate declared by the employer? If it's the latter, it's not defined contribution. That explains why it's not included in the $50k cap.
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by House Blend » Fri Feb 10, 2012 10:47 am

tfb wrote:
supraacumen wrote:Furthermore, seeing that both my 403(b) and 401(a) allow for after-tax contributions, it seems reasonable that the $50k limit applies to both accounts for a grand total of $100k.
Not so fast. The $50k limit applies to all defined contribution plans under the same employer. So it comes down to whether your 401a is defined contribution. What do you get from this 401a? Money invested in funds like in the other plans? Fixed interest rate declared by the employer? If it's the latter, it's not defined contribution. That explains why it's not included in the $50k cap.
FWIW, my employer's plan includes a 401a, 403b, and 457b. They are all defined contribution and have identical investment options.

The plan document emphasizes that the $50K limits on 401a and 403b plans are separate.

We also get around the $17K limit on tax-deferrals by having categories (based on salary/age/years of service) in which a certain level of participation is compulsory. The compulsory amounts and the employer contributions go into a 401a, and the elective amounts go into a 403b. We can fill the 403b up to the limit of 17K/22.5K, even though more than that can be tax-deferred out of our paychecks when you add the compulsory part.

(But our plan does not allow after-tax contributions.)

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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by supraacumen » Fri Feb 10, 2012 7:56 pm

House Blend wrote:FWIW, my employer's plan includes a 401a, 403b, and 457b. They are all defined contribution and have identical investment options.

The plan document emphasizes that the $50K limits on 401a and 403b plans are separate.
My plan(s) are very similar to this in that both are defined contributions, have identical investment options, and the plan document emphasizes that the $50k limits for the 401(a) and 403(b) plans are separate. With after-tax contributions allowed toward both accounts, my understanding is that 401(a) contributions would not count toward the elective deferral cap.
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by tfb » Fri Feb 10, 2012 9:09 pm

supraacumen wrote:
House Blend wrote:FWIW, my employer's plan includes a 401a, 403b, and 457b. They are all defined contribution and have identical investment options.

The plan document emphasizes that the $50K limits on 401a and 403b plans are separate.
My plan(s) are very similar to this in that both are defined contributions, have identical investment options, and the plan document emphasizes that the $50k limits for the 401(a) and 403(b) plans are separate. With after-tax contributions allowed toward both accounts, my understanding is that 401(a) contributions would not count toward the elective deferral cap.
The $50k limit and the elective deferral cap ($17k) are different. What exactly does the plan document emphasize? 457b is separate -- that we already know. Compulsory or after-tax contributions to 401a are not counted as elective deferral -- no question there -- compulsory means not elective, after-tax is not deferral. The only question is whether 401a and 403b have a shared or separate $50k limit, which is called the "annual addition" limit under section 415(c). Section 415(f) says
(f) Combining of plans
(1) In general
For purposes of applying the limitations of subsections (b) and (c)—
(A) all defined benefit plans (whether or not terminated) of an employer are to be treated as one defined benefit plan, and
(B) all defined contribution plans (whether or not terminated) of an employer are to be treated as one defined contribution plan.
For the 401a and 403b to have separate limits, they must be from different employers or one of them is not considered defined contribution. There's also an exception for "governmental excess benefit arrangements" under 415(m). Does your 401a have anything to do with a government?
(m) Treatment of qualified governmental excess benefit arrangements
(1) Governmental plan not affected
In determining whether a governmental plan (as defined in section 414 (d)) meets the requirements of this section, benefits provided under a qualified governmental excess benefit arrangement shall not be taken into account.
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supraacumen
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by supraacumen » Fri Feb 10, 2012 9:32 pm

tfb wrote:The $50k limit and the elective deferral cap ($17k) are different. What exactly does the plan document emphasize? 457b is separate -- that we already know. Compulsory or after-tax contributions to 401a are not counted as elective deferral -- no question there -- compulsory means not elective, after-tax is not deferral. The only question is whether 401a and 403b have a shared or separate $50k limit, which is called the "annual addition" limit under section 415(c).
I realize I have been a bit loose with my terminology, and I appreciate that you have pointed this out to me. A 457(b) does not apply in my case, as I am strictly working with a 401(a) and a 403(b). Your last point about whether or not the two plans have a shared limit is certainly the heart of the original question.
tfb wrote:For the 401a and 403b to have separate limits, they must be from different employers or one of them is not considered defined contribution. There's also an exception for "governmental excess benefit arrangements" under 415(m). Does your 401a have anything to do with a government?

(m) Treatment of qualified governmental excess benefit arrangements
(1) Governmental plan not affected
In determining whether a governmental plan (as defined in section 414 (d)) meets the requirements of this section, benefits provided under a qualified governmental excess benefit arrangement shall not be taken into account.
My employer acts as a non-profit, trusted aid for the government. Whether or not this falls under the "governmental plan" definition, is up for debate.
(d) Governmental plan
For purposes of this part, the term “governmental plan” means a plan established and maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing.
The clause "agency or instrumentality of any of the foregoing" is a bit vague, and my employer may fall under this category, as they act as a trusted agent/instrument for the government. This to me is difficult to say, as I am not quite up to par with political/lawyer jargon.
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by grok87 » Fri Feb 10, 2012 9:37 pm

interesting. it looks like the $50k limit is for this year- last year it was for $49 k. Does anyone know if this is regularly adjusted for inflation or how it is adjusted. What was it for the past 5 years for example...
cheers,
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by supraacumen » Fri Feb 10, 2012 9:42 pm

grok87 wrote:interesting. it looks like the $50k limit is for this year- last year it was for $49 k. Does anyone know if this is regularly adjusted for inflation or how it is adjusted. What was it for the past 5 years for example...
cheers,
As far as I know, it is regularly adjusted. I do not remember the exact means to how they adjust it, but I know that in 2007 it was about $47.5k, in 2011 it was $49k, and in 2012 it is $50k.
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by grok87 » Fri Feb 10, 2012 10:08 pm

supraacumen wrote:
grok87 wrote:interesting. it looks like the $50k limit is for this year- last year it was for $49 k. Does anyone know if this is regularly adjusted for inflation or how it is adjusted. What was it for the past 5 years for example...
cheers,
As far as I know, it is regularly adjusted. I do not remember the exact means to how they adjust it, but I know that in 2007 it was about $47.5k, in 2011 it was $49k, and in 2012 it is $50k.
Thanks- good link here
http://www.evergreenbenserv.com/id63.html
looks like the total limit was

2003 $40 k
2004 $41 k
2005 $42 k
2006 $44 k
2007 $45 k
2008 $46 k
2009 $49 k
2010 $49 k
2011 $49 k
2012 $50 k

for the 402g limits (how much of your salary you can put in) the pattern was
2003 $12 k
2004 $13 k
2005 $14 k
2006 $15 k
2007 $15.5 k
2008 $15.5 k
2009 $16.5 k
2010 $16.5 k
2011 $16.5 k
2012 $17 k

so from 2003-2012 the total limit increased by $10 k or 25% but the 402g limit increased by $5k or 42%!
Since 2006 the increases have been more comparable- both increasing by around 13%.
cheers,
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by tfb » Fri Feb 10, 2012 10:34 pm

supraacumen wrote:so from 2003-2012 the total limit increased by $10 k or 25% but the 402g limit increased by $5k or 42%!
Since 2006 the increases have been more comparable- both increasing by around 13%.
The 402g limit was hard coded to $15,000 in 2006. Then it adjusts for inflation using the average CPI numbers in the July-to-September quarter from one year to another, but it rounds down to the nearest $500.

The 415c annual additions limit was hard coded to $40,000 in 2002. Then it adjusts for inflation using Q3 inflation numbers but it rounds down to the nearest $1,000.

See how the other limits adjust in 2012 401k and IRA Contribution Limits.
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by grok87 » Fri Feb 10, 2012 10:52 pm

tfb wrote:
supraacumen wrote:so from 2003-2012 the total limit increased by $10 k or 25% but the 402g limit increased by $5k or 42%!
Since 2006 the increases have been more comparable- both increasing by around 13%.
The 402g limit was hard coded to $15,000 in 2006. Then it adjusts for inflation using the average CPI numbers in the July-to-September quarter from one year to another, but it rounds down to the nearest $500.

The 415c annual additions limit was hard coded to $40,000 in 2002. Then it adjusts for inflation using Q3 inflation numbers but it rounds down to the nearest $1,000.

See how the other limits adjust in 2012 401k and IRA Contribution Limits.
thanks tfb- good page
looks like for next year the 402g should be at $17.5 k and the total deferral limit at $51k
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by wjo » Fri Feb 10, 2012 11:05 pm

tfb wrote: The $50k limit and the elective deferral cap ($17k) are different. What exactly does the plan document emphasize? 457b is separate -- that we already know.
Are we sure that the 457 contributions don't count towards the maximum limit? The text around 415(c)(2) refers to annual additions as the sum of employer and employee contributions and forfeitures. The text specifically excludes the rollover portion of plans, including rollovers made under 457(e)(16). By excluding rollovers in the 457, doesn't that implicitly include contributions made to the 457 plan during the year as part of annual additions and hence contributions that would count towards the elective deferral limit?

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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by tfb » Sat Feb 11, 2012 11:19 am

wjo wrote:Are we sure that the 457 contributions don't count towards the maximum limit? The text around 415(c)(2) refers to annual additions as the sum of employer and employee contributions and forfeitures. The text specifically excludes the rollover portion of plans, including rollovers made under 457(e)(16). By excluding rollovers in the 457, doesn't that implicitly include contributions made to the 457 plan during the year as part of annual additions and hence contributions that would count towards the elective deferral limit?
Yes, pretty sure about 457 being separate. That mention of rollovers made under 457(e)(16) is talking about rollovers *from* a 457 plan into a qualified plan being excluded in the annual addition. The elective deferral limit under 402g specifically lists the plans it applies to:
(3) Elective deferrals
For purposes of this subsection, the term “elective deferrals” means, with respect to any taxable year, the sum of—
(A) any employer contribution under a qualified cash or deferred arrangement (as defined in section 401 (k)) to the extent not includible in gross income for the taxable year under subsection (e)(3) (determined without regard to this subsection),
(B) any employer contribution to the extent not includible in gross income for the taxable year under subsection (h)(1)(B) (determined without regard to this subsection),
(C) any employer contribution to purchase an annuity contract under section 403 (b) under a salary reduction agreement (within the meaning of section 3121 (a)(5)(D)), and
(D) any elective employer contribution under section 408 (p)(2)(A)(i).
A = 401k
B = 401h, post-retirement medical
C = 403b
D = SIMPLE IRA

457 isn't in the list. It gets its own limit in 457(e)(15), which by coincidence matches the elective deferral limit under 402g.
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by YoungLion » Sat Feb 11, 2012 12:13 pm

I have a 401(a), 403(b), and 457 plan at my place of employment and recently had similar questions as it was unclear to me in both my employers documents and IRS publications. I emailed my our HR department who forwarded it to our retirement plan administrator.

I received a knowledgeable, jargon-filled, and confidently worded response. For what it's worth, our 401(a) contributions are separate from 403(b) and 457 contributions in regards to the $50K annual additions limit. I printed off the email and filed it along with my employers other retirement docs.

I can't say with 100% certainty that it's the same in your case, but it seems to me from the responses and the information from your employer that it is permissible.

If would further ease you mind, I think I would email your HR department, reference the information you were sent, say that your understanding is XYZ and you wanted to make sure this is correct, print off the response and file it along with your employers other retirement docs.

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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by supraacumen » Sat Feb 11, 2012 12:47 pm

YoungLion wrote:I have a 401(a), 403(b), and 457 plan at my place of employment and recently had similar questions as it was unclear to me in both my employers documents and IRS publications. I emailed my our HR department who forwarded it to our retirement plan administrator.

I received a knowledgeable, jargon-filled, and confidently worded response. For what it's worth, our 401(a) contributions are separate from 403(b) and 457 contributions in regards to the $50K annual additions limit. I printed off the email and filed it along with my employers other retirement docs.

I can't say with 100% certainty that it's the same in your case, but it seems to me from the responses and the information from your employer that it is permissible.

If would further ease you mind, I think I would email your HR department, reference the information you were sent, say that your understanding is XYZ and you wanted to make sure this is correct, print off the response and file it along with your employers other retirement docs.
This seems like the logical next step. As I mentioned previously, my employer may fall under the agent/instrument of the government exception, and I suspect the only way to know for certain is to e-mail HR. This should certainly eliminate the ambiguity.
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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by wjo » Sat Feb 11, 2012 1:14 pm

tfb wrote: 457 isn't in the list. It gets its own limit in 457(e)(15), which by coincidence matches the elective deferral limit under 402g.
Thanks. I am bumping up against the limit if I include my 457, so it looks like I have some more space. Will also get a ruling from our HR dept.

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Re: Investing more than $50k Limit to Tax Advantaged Account

Post by tfb » Sat Feb 11, 2012 1:21 pm

There's also a special rule for 403(b) annuity contracts. The regulations 26 CFR 1.415(f)-1(f) say
(f) annuity contracts— (1) In general. In the case of a section 403(b) annuity contract, except as provided in paragraph (f)(2) of this section, the participant on whose behalf the annuity contract is purchased is considered for purposes of section 415 to have exclusive control of the annuity contract. Accordingly, except as provided in paragraph (f)(2) of this section, the participant, and not the participant's employer who purchased the section 403(b) annuity contract, is deemed to maintain the annuity contract, and such a section 403(b) annuity contract is not aggregated with a qualified plan that is maintained by the participant's employer.
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