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Doctor w/ hospital 403b, starting 401k for practice (again)


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This seems to comes up periodically... some of the threads end up trailing off, and some don't seem to come to the same conclusions (though that might be me misreading them!) because this is not particularly intuitive, so let me try and ask this with a concrete example that was just presented to me.  I'll even link some of the previous threads that I thought were good ones.

Doctor D is doing the max 403b deferrals and getting a match in the hospital's 403b plan.  He is now about to start a practice of his own (100% owner) and wants to start up a 401k plan - deferrals, 3% SH, class based profit sharing.  He does not control the hospital or sit on its board.  He is 55 years old.  I don't have exact numbers, but let's make the math easy and say he's getting $200K compensation from the hospital and expecting $300K from his S-corp practice.  The hospital's 403b match is capped at 2%.

He can't double-dip on deferrals between both plans, so he will do those in the 403b plan to get the match (if the CPA can find a tax angle for him to do deferrals from the private practice in 2023 that is worth giving up the match, he can make that change in January 2023).  But let's assume that he keeps deferring into the 403b plan.

Do I have to include the 403b deferrals in any testing that I do?  It appears "yes": $67,500 max including catch-up less $27,000 403b deferrals = $40,500 that he can get as employer (i.e., non-401k) contributions in the 401k plan.

Does the match he is getting affect this at all?  I'm thinking "no", since it is an unrelated employer, even though there is all that stuff about the 403b 'belonging' to him.

That's actually another question: the 1.415(f)-1 regs refer to a 403b "annuity contract"... but what if the 403b plan is not held in annuity contracts, but it's instead on a mutual fund recordkeeping platform?  Is that splitting hairs?  Admittedly, it might be...

If Doctor D was establishing this as an equal partnership with Doctors E and F 1/3 apiece, since D's ownership would be less than 50%, would he not have to count his 403b deferrals against his $67,000 limit and/or $27,000 limit, in effect getting two separate limits?

Is there anything else that needs to be considered?  Any of this incorrect?  Thanks.

November 2016 thread
July 2017 thread
March 2018 thread
November 2021 thread

Also reference your favorite site for 415(c) and 1.415(f)-1(f) (see especially Examples 6 and 7).

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You've got a single 415 limit between the 403(b) and the k plan if the Dr. "controls" the "practice" he is starting. 1.415(f)-1(f)(2), as you have already discovered in your research, AlbanyConsultant.

On 6/14/2022 at 4:06 PM, AlbanyConsultant said:

but what if the 403b plan is not held in annuity contracts, but it's instead on a mutual fund recordkeeping platform?  Is that splitting hairs?  Admittedly, it might be...

Splitting a nonexistent hair, AlbanyConsultant. See 1.415(a)-1(b)(3). Basic rule of Federal income tax: "Read, and keep reading."

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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