Followup: Multiple Employers and the 415(c) Limit

Last week I asked for help with a somewhat complex tax situation. Here we are a week later, and fortunately I feel as if I have a better handle on the situation. For the finer details, it’s probably best to go back and read my original call for help and then come back here for details on the resolution.

After having read the comments that various people left and researched the situation further on my own, I am more convinced than ever that separate employers means separate 415(c) limits, as outlined in section 415(f) where it talks about aggregating plans. In fact, while one commenter pointed to the Internal Revenue Bulletin from April 30, 2007 as evidence against this view, here’s a snippet from that same bulletin:

Under section 415(f) and these regulations, for purposes of applying the limitations of section 415(b) and (c), all defined benefit plans that have ever been maintained by an employer are treated as one defined benefit plan, and all defined contribution plans that have ever been maintained by an employer are treated as one defined contribution plan.

However, as Tom Geer pointed out, it’s a bit more complex than simply aggregating accounts on a per-employer basis. Indeed, check out IRC 415(k)(4):

Special rules for sections 403(b) and 408
For purposes of this section, any annuity contract described in section 403(b) for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under subsection (b) or (c) of section 414 (as modified by subsection (h)). For purposes of this section, any contribution by an employer to a simplified employee pension plan for an individual for a taxable year shall be treated as an employer contribution to a defined contribution plan for such individual for such year.

The last bit says that SEP contribution are treated as employer contributions, which I knew going in, but… The first part says that 403(b) plans are to be treated as a defined contribution plan that is maintained by each employer that I have control over. In other words, it’s treated as if it’s associated with my self-employment, and thus the contributions get lumped in with my SEP-IRA contributions and counted against the 415(c) limit associated with me self-employment.

So… I was partially right (and thus partially wrong, of course). Since my 457(b) is pretty much on its own according to IRS guidance, I can stash $15.5k there as well as $45k combined between my SEP-IRA and 403(b). This is seemingly in addition to my employer’s defined contribution plan. While this works out to a bit less than I thought I could stash away at the outset, I’m not one to look a gift horse in the mouth. Thanks to all who chimed in to help sort this out. And, of course, if you have anything more to add, please don’t hesitate to leave a comment.

5 Responses to “Followup: Multiple Employers and the 415(c) Limit”

  1. Anonymous

    This publication from the IRS did a lot to clear the issue up for me:

    It says that if you have a 403b and a 401k with the SAME employer you’re in luck. You can contribute up to the 415 limit for EACH. However, and this seems to be the far more common case, if the 403b and the 401k, etc. are with different employers, including yourself, you have to aggregate the contributions so you’re limited to the normal 415 limit.
    This has some good examples, also from the IRS:
    It even addresses those 403b plans with mandatory contributions.

  2. Anonymous

    I have this precise problem. My employer (a university) offers a 403(b) where my contributions are mandatory (just like what you described), a pre-tax TDA (which also falls under 403(b)), and a 457. I have separate consulting income that I put into a SEP-IRA.

    2 questions:

    1. I assume (as did you) that my 403(b) mandatory contributions are not “elective deferrals” such that it does not count towards the 15,500 402(g) limit. Did you ever get any resolution on that?

    2. My real concern is whether 415(c) applies to my SEP contributions. I’m not sure I follow your conclusion that a University employer 403(b) would be aggregated with my self-employed SEP-IRA for 415(c) purposes.

    Do you have an email address that I can contact you at?

  3. Anonymous

    Maybe you could help me with the following:
    I have a 403b with one employer (a DCP with a match and a TSA that I max out with $15,500) which I understand is subject to the $45,000 limit (2007).
    However, due to life changes I may be moving in July and thus switching employers to one that has a 401k with a match option within the same tax year.
    Are they treated separately under 415 code? Is the max on each (403b, 401k) $46,000 for 2008, or $46,000 for both? My current employer thinks it’s separate because of the different tax codes, but I’d like to confirm so I may optimize my contributions for next year (and have to request before December 1 this year…) Thanks.

  4. Nickel

    Blaine: That depends on how much self-employment income we generate this year (SEP contributions are limited to ca. 20% of self employment income). However, my intention is to max out everything up to the allowable limits.

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