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Need advice regarding 403b,457b and 401a

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  • Need advice regarding 403b,457b and 401a

    Current employer has: 403b to which I am contributing the maximum annual limit

    They also have a 457b towards which I plan to contribute the maximum annual limit

    They also have a 401a which is the employer setup plan for 6% match.

    So, does the maximum annual limit of 54,000 include the 457b or is it just the 403b and 401a supplemental plan. Is there any advantage to making post tax contributions to the 401a plan?

  • #2
    Lots of good questions.

    415c includes both 401a and 403b -  with 54k annual limit of total contributions (including employer match).   That said, I've read several differing opinions and data points on the 54k limits from the 401a -- eg we are in the UCalifornia system the a poster on Boglehead has contributed PAST the 54k limit if 401a (DCP) and 403b were combined.  The UC benefits people didn't call that out as an overage.

    I'm going to test out this theory this year by going over the 54k combined by 1k (ie:  403b 18k, 457 18k, 401a 37k). to see if true or not -- let's see.  If no hiccup 2018 will be  403b 18k  457 18k 401a 54k and even more when 50 yo turns around.

    If your 401a plan is setup like UC's DCP-- the key benefit is that you can make a distribution of all those 401a into a ROTH IRA without penalties/costs.  It's a very sweet plan.

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    • #3
      Let's deal with the easy one first. The 457 is a non-qualified plan and its limit is totally separate from all other plans.

      Next under IRS regulations; 26 CFR 1.415(f)-1 - Aggregating plans (f) Section 403(b) annuity contracts. A 403b plan is considered exclusively controlled by the participant and for purposes of the 415c limits:

      "the participant, and not the participant's employer who purchased the section 403(b) annuity contract, is deemed to maintain the annuity contract, and such a section 403(b) annuity contract is not aggregated with a qualified plan that is maintained by the participant's employer."

      However, because the 403b participant controls the 403b plan, any employer retirement plans of businesses > 50% owned by the participant are aggregated with the 403b plan. The example is exactly on point for WCI:

      "for example, if a doctor is employed by a non-profit hospital to which section 501(c)(3) applies and which provides him with a section 403(b) annuity contract, and the doctor also maintains a private practice as a shareholder owning more than 50 percent of a professional corporation, then any qualified defined contribution plan of the professional corporation must be aggregated with the section 403(b) annuity contract for purposes of applying the limitations of section 415(c) and § 1.415(c)-1."

      In the OP's case, the following limits apply:

      1. 457b plan, $18K limit, separate and distinct.

      2. 403b plan, $18K employee deferral limit shared with all other qualified plans.

      3. 403b plan, $54K annual addition limit only shared with any employer retirement plans of businesses > 50% owned by the OP.

      4. 401a plan, $54K annual addition limit, separate and distinct.


      Yes, if the 401a allows employee after-tax contributions and in-service withdrawals/rollovers. You should max out the 401a's separate $54K annual addition limit.

      Given sufficient resources, The OP should make/receive the following contributions; 457b = $18K employee deferral, $403b = $18K employee deferral and 401a = 6% employer match + ($54K - employer match) in employer after-tax contributions followed by in-service rollover(s) to implement the so called Mega Backdoor Roth.

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      • #4
        So, just to make sure I am getting this right,

        the 403 b annual contribution limit of 18,000 shouldn't be considered into the 54K annual addition limit. If hypothetically, the employer contribution to the 401a supplemental plan is 10,000, does this mean the 54k post tax contribution would be in addition to the 10,000 or would the remaining amount that could be contributed would be ( 54,000-10000 i.e 44,000). If the employer doesn't provide inservice rollover, would there be any benefits of post tax contributions? Technically, you could just use that money in your taxable brokerage account for investments and probably would give you more investment options?

        Comment


        • #5


          If the employer doesn’t provide inservice rollover, would there be any benefits of post tax contributions? Technically, you could just use that money in your taxable brokerage account for investments and probably would give you more investment options?
          Click to expand...


          First, try to verify that your employer does not allow in-service rollovers. It would be helpful if you didn't have to go down this path if not necessary.

          Assuming your employer doesn't allow in-service r/o's, your next step is to assess the probability of long-term employment with your current employer. If you plan to leave in the next 5 years or so, I believe it would be worthwhile to fill up the NRAT space and roll out to a Roth account as soon as you separate from service. If you plan to be there longer, you'll have to weigh the advantages of making a hefty Roth contribution at some point in the future and paying taxes on any growth at your marginal tax rate versus paying taxes at LTCG rates on the growth. That's not a call I can make for you.
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            I have a 401 A where I am making a post tax contribution. I have come to realize that you can take your post tax contribution every year and roll it into a Roth IRA. How does this really work? can you just take the post tax distribution and roll it over or would it need to be split with the pretax and post tax contribution in your 401? Would this impact the annual back door ROTH conversion of 5500

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            • #7




              I have a 401 A where I am making a post tax contribution. I have come to realize that you can take your post tax contribution every year and roll it into a Roth IRA. How does this really work? can you just take the post tax distribution and roll it over or would it need to be split with the pretax and post tax contribution in your 401? Would this impact the annual back door ROTH conversion of 5500
              Click to expand...


              Whether you can or cannot roll into a Roth annually is determined at the employer level. Get a copy of your SPD (Summary Plan Description) and read carefully. Also talk to your HR department, where you will (should) get instructions on how to accomplish this (again, if allowed). You would have to pay tax on any growth that you r/o into a Roth IRA.

              No, this will not affect your annual backdoor Roth conversion. That is done at the individual level and the 401a is at the employee level.
              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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              • #8
                The rollover is allowed. How would they calculate tax on the growth since it is a combined 401 with employer contribution match and employee post tax contribution. My presumption that that rollover wouldn't trigger any taxable event since I already paid taxes on it

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                • #9
                  The employee after-tax contribution and earnings should be separately accounted for. When you rollover these assets, you must rollover both the after-tax contributions and the associated pre-tax earnings. Other separately accounted for assets e.g employer contributions and earnings are not involved.

                  If you rollover both to a Roth IRA, the after-tax contributions will be tax free, but the earnings will be subject to ordinary tax rates. The only way to avoid any tax liability on the rollover is to rollover the after-tax contributions to a Roth IRA and the pre-tax earnings to a traditional IRA.

                  However, if you are doing a Backdoor Roth, you will only want to do this if you can rollover any pre-tax assets to an employer plan by 12/31. I would not try to do a split rollover this year.

                  Either rollover both to the Roth IRA or wait until January if there are a large amount of earnings and you want to isolate them and can roll them back into an employer plan. The is no requirement that the contributions and rollover occur in the same year.

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