DB/DC Combo 404(a)(7) limits and non-Roth after-tax contributions

[Guest hk73]

How do non-Roth after-tax contributions to a DC plan affect the DB/DC combo limit rules in 404(a)(7) ?

[Andy the Actuary]

Interesting question but what suggests to you they should when (as you said) Roth contributions are non-deductible and 404(a)(7) pertains to destructibility?

[Lou S.]

I think the idea is for 1 part plan to fund max DB limit, make after tax contrib of 415© limit to DC plan, then convert after tax account to ROTH via in plan rollover and circumvent the ROTH 401(k) limit.

I believe there was similar thread on this early if you use the search function but I can recall if there was any concensus on if this ws allowable or not.

[Lou S.]

Interesting question but what suggests to you they should when (as you said) Roth contributions are non-deductible and 404(a)(7) pertains to destructibility?

Being a typo king myself I found this quite humorous.

[Guest hk73]

Lou, yes that was the strategy. Not circumvent the Roth 401(k) limit (Congress obviously intended to allow in-plan Roth conversion of almost any 401(k) account balances if the plan allows it), but circumvent the combined plan limit on contributions to tax-advantaged accounts (if there is any). It would appear to me that there is none.

Reading the rules on combined plan limits, it appears that only deductible employer contributions are limited, but not salary deferrals or after-tax contributions.

Other than after-tax contributions from employee salary, the combined plan limit rules effectively limit the total contributions to tax-advantaged accounts, as non-deductible employer contributions are subject to excise taxes and more, if I'm not mistaken.

However, the combined plan limit rules don't explicitely limit total contributions (of any kind) to tax-advantaged accounts.

Even before the 2010 and 2012 legislation, after-tax contributions from salary could be made to 401(k) plans, if the plan allowed them. If a company has a DB and a 401(k) plan, the maximum benefits of the DB plan could be supplemented with DC salary deferrals and after-tax contributions up to the section 415 limits, and after-tax contributions can usually eventually be moved to some sort of Roth account (401(k) or IRA).

Especially with the new Roth 401(k) legislation, and a suitable plan designed to allow the in-plan conversions allowed by law, it would appear that there is effectively no combined limit on contributions to tax-deferred accounts other than the individual plan limits, i.e. the DB and DC plans can be 'maxed out' separately.

In summary, it appears that Congress sought to limit current deductibility, not the amount of contributions.

Please let me know if I'm missing something.