Cash Balance plan and SEP/solo401k

[Guest rmse46]

I have a client who has a 403b (no match) and maxing out contribution. She also participates in employers Cash Balance Plan. In addition, she has 50-75k of self-employment income. I was thinking of setting up solo 401k or SEP plan but didn't know if cash balance contribution 13K would impact her contribution to self employment plan. Please advise.

Rick S

Westborough, AM

[Guest Carol the Writer]

If your client is a medical-type, then I think she is maxed out already, and there is no "room" for an additional 401(k) or a SEP.

Even is she is not a medical type, then the fact that she is at the max in the 403(b) would appear to eliminate altogether the additional 401(k)/SEP feature. However, in this latter case, she may be eligible for a cash balance or other defined benefit plan.

Anyone disagree?

[Guest rmse46]

Maybe I wasn't clear, she works for a hsopital and defers max, $20,500. The hospital also has Cash balance plan that she is a participant in. They contribute aabout 13K per year.

My question is with respect to her self-employment income of 50-75K. Can we set up SEP and what is the limitation? does the hospital CB contribution count toward the 50K limit? Since is is technically at defined benefit plan, I think not but that is why I ask the question.

[JanetM]

The SEP is your only real option.

[masteff]

there is no "room" for an additional 401(k) or a SEP.

Anyone disagree?

Actually limit would apply to 401(k) and SIMPLE but not to SEP. (Bird's post (#10) in this thread illustrates: http://benefitslink.com/boards/index.php?showtopic=35164 ).

And no, in a situation like this where the employers are different (hospital versus herself), the cash balance plan has no impact on doing an SEP.

[Guest mjb]

She can establish a SEP or qualified PS plan for self employment income and deduct 20% of net earnings (sked C) less 1/2 of FICA. See IRS pub 560 for requirements.

[Appleby]

I agree with mjb.

She can max out the SEP or PS, because doing so will not result in contributions of more than $45,000, when added to the 403(b) contribution.

The CB plan does not affect the self-employment plan. But contributions to the 403(b) plan is aggregated with the SEP/PS to determine 415 limit of $45,000.

401(k) or SIMPLE is not an option, as she already maxed out her 402(g) limit.

[Guest rmse46]

Thank you very much that is what i thought. Where do I find supporting backup in case I am questioned by the client's CPA?

Rick S

[Guest rmse46]

Wouldn't the limit be 50K, since she is over 50?

I agree with mjb.

She can max out the SEP or PS, because doing so will not result in contributions of more than $45,000, when added to the 403(b) contribution.

The CB plan does not affect the self-employment plan. But contributions to the 403(b) plan is aggregated with the SEP/PS to determine 415 limit of $45,000.

401(k) or SIMPLE is not an option, as she already maxed out her 402(g) limit.

[masteff]

rmse46 -- 1) for support, as mjb said, see IRS publication 560. 2) no, the extra amount for catch-up only applies to elective deferrals and does not apply to an SEP (which are technically employer contributions).

[CTipper]

The CB plan does not affect the self-employment plan. But contributions to the 403(b) plan is aggregated with the SEP/PS to determine 415 limit of $45,000.

401(k) or SIMPLE is not an option, as she already maxed out her 402(g) limit.

I know I've come late to this party, but since when are 415 limits for 2 separate employers aggregated?

I'm not talking about the 402(g) limit. That's clear. She's at the maximum.

But since when do one employer's employer contribution to a 403(b) plan have a limit on a separate employer's profit sharing plan?

Christopher

[SoCalActuary]

And further, in this forum it seems fair to ask why she cannot have a DB plan for her Self-Employment income.

If there is enough prior pay history, you could deduct the entire SE income after the SE tax.

[Guest mjb]

The CB plan does not affect the self-employment plan. But contributions to the 403(b) plan is aggregated with the SEP/PS to determine 415 limit of $45,000.

401(k) or SIMPLE is not an option, as she already maxed out her 402(g) limit.

I know I've come late to this party, but since when are 415 limits for 2 separate employers aggregated?

I'm not talking about the 402(g) limit. That's clear. She's at the maximum.

But since when do one employer's employer contribution to a 403(b) plan have a limit on a separate employer's profit sharing plan?

Christopher

Under IRC 415(k)(4) an employee is deemed to have the control necessary under 414(b)or © to require aggregation of the 403b contributions with contributions made to a qualified DC plan or SEP maintained by an employer in which the employee has a greater than 50% ownership interest. See reg 1.415(f)-1(f)(2) and (3) and 1.415(f)-1(j), example 7.