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415c limit in a 403(b) plan


KaJay
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If someone changes employers mid-year, do the employer contributions made to his DC plan with his first employer get aggregated with the employer contributions made by his new employer's DC plan when considering the 415c limit OR is the 415c limit separate for each employer?

 

 

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The 415 limit is separate for each unrelated employer.

Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance.

Corey B. Zeller, MSEA, CPC, QPA, QKA
Preferred Pension Planning Corp.
corey@pppc.co

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C.B. Zeller’s point is in 26 C.F.R. § 1.415(f)-1(a)(2)&(3).

And see 26 C.F.R. § 1.415(f)-1(f) for some wrinkles about § 403(b) contracts.

For example, a § 415(c) limit counts annual additions to a § 403(b) contract and annual additions under a § 401(a) plan of an unaffiliated business the individual controls (more than 50%).  An example is a physician who is an employee of a charitable hospital and is the shareholder of her separate professional corporation for another medical practice.  Or a professor who is a university’s employee and is the member or proprietor of her consulting business.

https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/subject-group-ECFR686e4ad80b3ad70/section-1.415(f)-1

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Just to clarify, what gets confusing is that for 403(b) plans, it’s as though the individual is the employer. That’s where the related employer issue pointed above becomes relevant. For example, a Dr. who is in a hospital’s 403(b) and 401(a) plan can double up. If the Dr is in the hospital’s 403(b) and also in a 401(a) plan sponsored by a clinic that he or she controls, then it’s one 415 limit.  For 401(a) plans, it’s one limit when there are multiple plans if the plan sponsors are related - controlled group or affiliated service group. There are separate limits if they are unrelated. 
 

Again, what’s unique about 403(b)s is that the individual, not the employer, is deemed to be the plan sponsor. That’s why you have to see what other plans are being sponsored by entities that are related to the individual, whereas for 401(a) plans, aggregation is based on employers that are related. If an individual is in two different 403(b) plans there is aggregation because there’s one sponsor - the individual. 

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This is quite confusing! I also took a look at Pub 571 and it stated that 403(b)s of unrelated employers do not get aggregated, but if 403(b)s are to be recognized as it is the individual that is the employer, then it seems like two 403(b)s of "separate employers" could never happen. My brain hurts. : )

 

Pub 571  https://www.irs.gov/pub/irs-pdf/p571.pdf

 3.

Limit on Annual Additions

The first component of MAC is the limit on annual additions.

This is a limit on the total contributions (elective deferrals,

nonelective contributions, and after-tax contributions) that can be

made to your 403(b) account. The limit on annual additions is generally the lesser of:

• $57,000 for 2020 and $58,000 for 2021, or

• 100% of your includible compensation for

your most recent year of service.

 More than one 403(b) account.

If you contributed to more than one 403(b) account, you must combine the

contributions made to all 403(b) accounts maintained by your employer.

If you participate in more than one 403(b) plan maintained by different

employers, you don’t need to aggregate for annual addition limits.

 

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The portion you quoted (from the caution paragraph that ends the left column on page 5) is an explanation about 26 C.F.R. § 1.415(f)-1(a)(2)&(3).

The IRS Publication also explains the rule of 26 C.F.R. § 1.415(f)-1(f), which my post illustrated.  That’s on the same page in the second of three columns in the paragraph with the heading “Participation in a qualified plan”.

While both those non-authoritative Publication bits are efforts to explain (loosely) the rule, it’s much easier (and much more informative) to read the actual rule (for which I furnished a hyperlink).

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Peter, even the language in the hyperlink you furnished is confusing to me. Sorry this taking me awhile to fully grasp...

Because an employee with a 430(b) is [always?] considered the "employer", in what instance would employer contributions made to two different 403(b)s in the same calendar year - one with the current employer and one of a previous employer - not be aggregated for purposes of the 415c limit?

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