Discussion:401K and simple plan contribution limit
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Discussion Forum Index --> Tax Questions --> 401K and simple plan contribution limit
| 16 September 2007 | |
| I have a client that participates in a company 401(k) and contributes the maximum employee deferral ($20,500, since he's over 50). He is also receiving schedule C income and would like to start a SIMPLE plan to defer part of his self-employment income. Has he already maximized his employee deferral through his 401(K) contributions and, if so, would it make any difference if his Schedule C income was paid to an incorporated entity, which then paid him a salary ( with a SIMPLE plan component)? | |
Death&Taxes (talk|edits) said: | 16 September 2007 |
| No can do. Only possibility for a deductible contribution is a SEP. I am sure Solomon will pop up and give you a cite. | |
| September 16, 2007 | |
| Deferrals coordinate. A cite would be wonderful, I've never found one, nor even found in authoritative writing that the deferral max includes ALL plans. But it does. | |
| 16 September 2007 | |
| Retirement plan limitations are quite confusing. Section 415 places annual limitations on plans. Thus there is a max contribution ($44000??? plus over 50 catch up) allowed within a plan (multiple plans of related employers are aggregated as one). Thus, an individual working for ABC Co who receives the max contribution of $44k and then leaves and starts his own corp could receive another $44k contribution without violating 415, as long as the two companies are unrelated. Section 402 places annual limits on voluntary employee deferrals. Therefore, if an individual makes the max elective deferral in a 401(k) plan, he cannot make a second deferral in another 401(k) at a different employer, nor an elective deferral to a SIMPLE plan.
(g) Limitation on exclusion for elective deferrals (1) In general (A) Limitation Notwithstanding subsections (e)(3) and (h)(1)(B), the
elective deferrals of any individual for any taxable year shall
be included in such individual's gross income to the extent the
amount of such deferrals for the taxable year exceeds the
applicable dollar amount.
| |
| 16 September 2007 | |
| JR1 - I think this is the cite you wish - §402(g)(3) (Cap added)
(3) Elective deferrals. For purposes of this subsection , the term “elective deferrals” means, with respect to any taxable year, the SUM of— (A) any employer contribution under a qualified cash or deferred arrangement (as defined in section 401(k) ) to the extent not includible in gross income for the taxable year under subsection (e)(3) (determined without regard to this subsection ), (B) any employer contribution to the extent not includible in gross income for the taxable year under subsection (h)(1)(B) (determined without regard to this subsection ), (C) any employer contribution to purchase an annuity contract under section 403(b) under a salary reduction agreement (within the meaning of section 3121(a)(5)(D) ), and (D) any elective employer contribution under section 408(p)(2)(A)(i) .
Note the §402(g) limitation does NOT coordinate with §457 plans. If an employer offers both a 401(k) and a 457 plan (such as the City of New York does), then a worker 50 or older could do $20,500 in each for an elective deferral total of $41K. | |
Death&Taxes (talk|edits) said: | 16 September 2007 |
| Glad someone spoke up; I think this is just one of those facts you know without knowing why. | |
| September 16, 2007 | |
| Thanks, NY, I guess all that was missing was your coding of the A-D items! Anyone for rewriting the retirement sections of the code and regs? | |
| 16 July 2008 | |
| Taxpayer has 2 corps. 1 corp has simple and owner is contributing 10,500. other corp has no plan. I think the owner could still open a 401k and do the 15,500 deferral in the second plan. Is this correct.
Thanks | |
| July 16, 2008 | |
| Did you read this thread Ek? No, each taxpayer has one combined/total deferral limit. You can't exceed that. | |
| 16 July 2008 | |
| JR, give EkCPA credit for knowing how to use the search field. He found the appropriate thread just fine. | |
| 16 July 2008 | |
| youch JR1,
From reading the post and sec 402. It looks to me that in the case i gave, the owner would be able to open a 401k in the other company and contribute $4,500. | |
| July 16, 2008 | |
| Right-O!
Sorry, wasn't trying to pinch you too badly, but it's a short thread so far! Just the first four had your answer there...I know I know, we're sometimes searching and hoping for a DIFFERENT answer...I get that.! :) | |
