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401k + 457b + HSA transitioning to 403b, solo 401k??

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  • 401k + 457b + HSA transitioning to 403b, solo 401k??

    Financial newb here, 1st year attending, trying to figure this all out. I'm leaving my first job in September. I currently am W2 and have a 401k + non-governmental 457b + HSA. I have wanted to maximize my 2021 contributions to these accounts before I leave, though am not eligible for match (employed <1 yr). 401k and 457b are on track to each have 19500 for 2021 by 9/1/21 (and unfortunately cannot roll over the 457b). I start at a new position in October where I'll be W2 again with just a 403b. I will also be receiving between 5-10k in 1099 income for combination of expert witness work and some random extra call/moonlighting may. I've already done my backdoor roth for this year

    Hoping someone can help me with the following questions

    1) Can I contribute both 19500 to my 401k through my first employer (1/2021-8/2021) AND then 19500 to the 403b through my second employer (10/2021-12/2021)? Or can I only only contribute to one of these accounts even if it is two different employers (rule 1? https://www.whitecoatinvestor.com/multiple-401k-rules/) ? And am I correct in thinking that the 457b, HSA, and Roth IRA do not count toward the combined 58k limit?

    2) I've never had 1099 income before so I'm not entirely sure how the 5-10k from 1099 income can work from a retirement benefit perspective in addition to my W2 income. from my reading, i'm under the impression i can put up to 20% of the net income into either a solo 401k or SEP IRA? so if correct, i can put (for mathematical simplicity) after tax 10k x .2 = 2k into a solo 401k... and that would be added to the prior 401k through my employer (19500) and 403b (19500) with the maximum between the three of those 58k? i had read here (rule 7, https://www.whitecoatinvestor.com/multiple-401k-rules/) that 403b isn't the same as 401k and that a solo 401k would be added to total with 403b. Additionally, if I do this (and this may be a better question for a different forum/subforum) do I need a separate EIN for this?

    thx so much in advance

  • #2
    1) no, one $19,500 in the 401k/403b bucket per year. Will your new employer have a match? you may want to consider stopping current contributions to your current 401k since there is no match if there's a match at your new place. If you maxed $19,500 this year in your old 401k, you can't contribute anymore until 2022, which means you'll miss a match if it exists. The $19,5000 does not count against the 457b or HSA or Roth IRA.

    2) Open a solo 401k and then put 20% of the net income from the 1099 in there. You can do this because you are the employer, and that $19,500 limit is for employee contributions. So by doing this you'll put more than $19,500 in a 401k/403b but that's because the money beyond that limit is coming from the employer. Yes, get an EIN.

    3) What is the plan with your current 457b? your current employer will likely make you decide what you're going to do with that money. If you've only been there a year there's not much in there so you might need to take a total lump sum distribution (can't roll over to a 401k) which I suppose isn't the end of the world. Or, you could just keep the money in there if your employer lets you

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    • #3
      Originally posted by JBME View Post
      1) no, one $19,500 in the 401k/403b bucket per year. Will your new employer have a match? you may want to consider stopping current contributions to your current 401k since there is no match if there's a match at your new place. If you maxed $19,500 this year in your old 401k, you can't contribute anymore until 2022, which means you'll miss a match if it exists. The $19,5000 does not count against the 457b or HSA or Roth IRA.

      2) Open a solo 401k and then put 20% of the net income from the 1099 in there. You can do this because you are the employer, and that $19,500 limit is for employee contributions. So by doing this you'll put more than $19,500 in a 401k/403b but that's because the money beyond that limit is coming from the employer. Yes, get an EIN.

      3) What is the plan with your current 457b? your current employer will likely make you decide what you're going to do with that money. If you've only been there a year there's not much in there so you might need to take a total lump sum distribution (can't roll over to a 401k) which I suppose isn't the end of the world. Or, you could just keep the money in there if your employer lets you
      thanks for the response

      1) my new employer does NOT match the first year so I figured I'd max out the 401k at the first job either way

      2) sounds good

      3) for 457, it's non govt plan. my future employer does not have 457b so i can't roll it over. i have to decide within 90 days of my last day of work what i want to do with it. When talking to Fidelity who manages it, sounds like i can choose to keep and let it grow in there (will have maxed out 457b x 2 yrs) or i can take out the money as lump sum (like you said) or spread out over 2-20 yrs. I'm not sure what is the best financially for me to do. I was planning on keeping it there and maybe spreading it out over time. I'm moving to a state that doesn't have state income tax (for how long, I do not know), so not sure if that should impact my decision. Still early in my career and probably on the lower side of income despite being a specialist since I'm in academics (for now). May move to private practice in future with ample opportunities in my field to double/triple in private practice (so much higher earning potential in future). What would be the best way, from your perspective based on that information, for me to handle my 457b?

      Comment


      • #4
        with that information you provided for the answer to #3, especially since you are in a no-tax state, I'd consider taking the money out over a 2-5 year period....stretching it out a little so long as it doesn't bump you into a higher tax bracket (what is your marginal rate this year?) but considering you may be in a state that does tax income and your salary will only go higher, probably take it out sooner. The decision really won't impact you long term

        Comment


        • #5
          Is this your first full year as an attending or did you graduate fellowship this summer?
          • If a new grad, I would lean toward taking the full 457b this year. You’ll not be in a lower tax bracket for many years.
          • If 1st full year, I would still consider the full amount, depending on how much is in the account (although you didn’t give us the approx balance, so hard to pinpoint)

          For full clarity: the amount you can contribute to a solo-k is: ($58k - .20*(net profits from solo-k - 1/2 FICA taxes on said profits) - 403b contributions (employee + employer)).

          JBME has given you very helpful and relevant advice, too. Tax planning/projections w/b very helpful in these circumstances.
          Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

          Comment


          • #6
            Originally posted by JBME View Post
            with that information you provided for the answer to #3, especially since you are in a no-tax state, I'd consider taking the money out over a 2-5 year period....stretching it out a little so long as it doesn't bump you into a higher tax bracket (what is your marginal rate this year?) but considering you may be in a state that does tax income and your salary will only go higher, probably take it out sooner. The decision really won't impact you long term
            to clarify, i am moving from a state that does have tax to one without.

            2020, i was a fellow for half the year and attending the last third...marginal rate ended up being 24%. For 2021, my rate will be 35% with 8 months with state tax and 3 months without....2022 will hopefully be stable and should 35% all without state tax.

            is there a disadvantage of just leaving it in place and letting it grow interest free in the 457b instead of taking it out?

            Comment


            • #7
              Originally posted by jfoxcpacfp View Post
              Is this your first full year as an attending or did you graduate fellowship this summer?
              • If a new grad, I would lean toward taking the full 457b this year. You’ll not be in a lower tax bracket for many years.
              • If 1st full year, I would still consider the full amount, depending on how much is in the account (although you didn’t give us the approx balance, so hard to pinpoint)

              For full clarity: the amount you can contribute to a solo-k is: ($58k - .20*(net profits from solo-k - 1/2 FICA taxes on said profits) - 403b contributions (employee + employer)).

              JBME has given you very helpful and relevant advice, too. Tax planning/projections w/b very helpful in these circumstances.
              thank you for your response. to clarify, i graduated fellowship summer of 2020. 2021 is my first full calendar year as an attending. I contributed 19500 for 2020 and will have also contributed 19500 by 9/1/21 for total of 39k + whatever i've earned on it.

              I guess what i'm confused about it is why not leave it and let it grow interest free instead of take it out? not sure what else i'd do with it except for put it in a taxable account. my 2020 taxes, i was 24% marginal rate with a state income tax. for 2021, i'll be 35% with most of the year having state income tax save 3 months

              Comment


              • #8
                this decision isn't going to make a big difference in your financial life. The risk to keeping the money in the 457 until you reach a certain age that is decades in the future is that this is your company's money....it's not yours until it's in your pocket. What that means is if where you work goes belly up, the creditors get access to that 457b money rather than you. How good are the finances of the institution? How confident are you of their finances going forward? It's a total guess. I'm not quite sure what I'd do in your shoes, but like I said this is just one year of funding a 457 plan and in a few decades you're going to have so much money if you keep doing what you're doing that losing the $19,500 + earnings probably will be under 1% of your net worth, so no biggie

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                • #9
                  Originally posted by BlueWildcat321 View Post

                  I guess what i'm confused about it is why not leave it and let it grow interest free instead of take it out? not sure what else i'd do with it except for put it in a taxable account. my 2020 taxes, i was 24% marginal rate with a state income tax. for 2021, i'll be 35% with most of the year having state income tax save 3 months
                  You may not have that option. Unlike ERISA-qualified plans, NPO 457b's can choose their own their own distribution timelines. You will probably have to choose (if you have options) within 60 days of separating from service. Some plans require immediate distribution, others allow you to wait and take RMDs, one client had to take out over a 10-yr timeline. You need to check with your plan administrator or get a copy of the SPD (if available) and review to find out the rules so you'll be fully informed before deciding. It will be fully taxable whenever you take out funds but there w/b no 10% penalty on distributions at any age.
                  Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                  Comment


                  • #10
                    Originally posted by JBME View Post
                    this decision isn't going to make a big difference in your financial life. The risk to keeping the money in the 457 until you reach a certain age that is decades in the future is that this is your company's money....it's not yours until it's in your pocket. What that means is if where you work goes belly up, the creditors get access to that 457b money rather than you. How good are the finances of the institution? How confident are you of their finances going forward? It's a total guess. I'm not quite sure what I'd do in your shoes, but like I said this is just one year of funding a 457 plan and in a few decades you're going to have so much money if you keep doing what you're doing that losing the $19,500 + earnings probably will be under 1% of your net worth, so no biggie
                    i dont know how to know how good the finances are (or how to check), but it's one of the largest nonprofit healthcare systems in the country with >30 hospitals an 50k+ employees in multiple states. I don't think they're going under any time soon. By the end of the year i'll have about 40k in there, but yah don't feel strongly about taking it out.

                    thank you!

                    Comment


                    • #11
                      Originally posted by jfoxcpacfp View Post

                      You may not have that option. Unlike ERISA-qualified plans, NPO 457b's can choose their own their own distribution timelines. You will probably have to choose (if you have options) within 60 days of separating from service. Some plans require immediate distribution, others allow you to wait and take RMDs, one client had to take out over a 10-yr timeline. You need to check with your plan administrator or get a copy of the SPD (if available) and review to find out the rules so you'll be fully informed before deciding. It will be fully taxable whenever you take out funds but there w/b no 10% penalty on distributions at any age.
                      from what I was told, i am not required to take immediate distribution. I can choose to take distributions between a 2 or 25 year span. I can also just let it sit as long as I want, but just have to make the decision on what to do with it within 60 days of finishing work there.

                      thank you!

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