403(b) Contribution for previous years service- affect 415 Limit?

[jane123]

A client received a nonelective contribution to her 403(b) account for this year. However, she is no longer working for the employer- she received no compensation from the employer for this year, and the contribution is based on past year’s services. Does this contribution affect her $42,000 limit for this year sicne it is based on past year's service ? She wants to do Solo 401(k) for this year .

Thanks in advance

Jane

[Guest Yanikoski]

The $42,000 limit is a PER-EMPLOYER limit. For 403(b) plans, the EMPLOYEE is deemed to control the plan, and so for purposes of this limit, must integrate 403(b) contributions with those of any other plans controlled by him or her. In this case, therefore, the previous employer's 403(b) contributions for the current year do NOT count against the $42,000 limit on the 401(k), UNLESS your client owns or controls the company that is offering the 401(k).

[jane123]

Thanks.

He is establishing the 401(k) his own self-employment business. So we will tell him to combine the 403(b) and the 401(k) for the $42,000 limit.

We were not sure, because we though the nonelective could apply to a previous year, sicne it was based on previous year's income ( after separation from service)...and as I am typing that I realize how silly it sounds.

Thanks a lot

[Guest Yanikoski]

I'm not sure anything sounds too silly when it comes to the tax code -- so much of it is counter-intuitive (like the employee being deemed the controlling party in a 403(b) plan sponsored by his or her employer!). In this case, the prior compensation is used to determine the maximum amount of the post-retirement contribution, but it is otherwise unconnected. Good try, though....

[jquazza]

How do you not violate 415 when you have no comp?

[E as in ERISA]

403(b) catchup under 415

So can't you use the 415 limit plus the catchup?

[Guest Yanikoski]

jquazza: By statute, the compensation for 403(b) purposes is defined as the compensation from the last one-year full-time equivalent of service -- so, for most full-time employees, this means the last 12 months of employment. regardless of how long ago that was, while for a half-time employee it would mean the last 24 months of employment. It's actually a little more complicated than this, but this is the general idea. This rule is unique to 403(b).

Katherine: Yes, you can use the 415 limit plus the age 50 catchup.