Does a 457 count towards the absolute max contribution (including 403b and 401k)

[Pootie22]

Hello,
I cannot find a clear answer for this as resources talk about the deferral limit or the maximum limit of just the employer contribution.

My wife maxed our her 403 b and 457 from her job.  She also has a business and a solo 401k, assuming her business makes $200k+, what is the absolute max she contribute to minimize taxes?
I understand that the deferral limit is $20,500 each (assuming under 50 years old) but I am not clear on the TOTAL limit of $61,000 that includes deferral from employee plus employer contributions.

Since she has a Solo 401k she can easily max out the deferral at $20,500 but I am wondering how much more she contribute as an employer.  The main thing I am not clear on is whether the 457 counts towards the $61,000 limit or not.

[seattlecyclone]

The $20,500 employee deferral limit is additive across any 401(k) and 403(b) plans you may have access to throughout the year. If she already put the full $20,500 into her 403(b) she can't do any employee-side contributions to her solo 401(k).

The $61k limit is per employer plan. This limit is for the sum of employee deferrals, employer matching, and after-tax contributions into each plan. If you work for multiple employers there's no reason you couldn't have $61k in each employer's plan, assuming the employers aren't under common ownership. Her self-employment activity therefore has a separate $61k limit from her main employer. Again, she won't be able to do employee-side contributions to this plan if she already maxed out a 403(b), but she will be able to do employer-side contributions of 20% of her net self-employment earnings (maxing out at $61k).

The 457 limit is completely separate from all of these.

[terran]

The 457(b) limit is separate from all plans. The employee salary deferral limit ($20,500 in 2022) is combined across all 403(b) and 401(k) plans. The overall contribution limit ($61,000 in 2022) is separate across most plans, but is combined across plans that the employee controls. As you can probably guess this includes solo 401(k) plans, but for some esoteric reason it also includes 403(b) plans, so she can contribute $20,500 to the 457(b) and $61,000 across any combination of 403(b) and solo 401(k) assuming she has sufficient income to justify that contribution. If she also had access to a 401(k) at an employer she didn't control she could contribute as much as $61,000 to each the solo 401(k)/403(b) combination and the unrelated 401(k).

She may be better off contributing as much as she she can to the 403(b) and then contributing the rest to the solo 401(k) because tax-deferred to contributions to a solo 401(k) reduce Qualified Business Income, which might reduce the QBI deduction. This wouldn't be the case if there's some other limiting factor that limits her QBI deduction other than QBI.

Edit: Since my statement about the solo 401(k)/403(b) combined limit conflicts with SeattleCyclone's here's a source.

[seattlecyclone]

As you can probably guess this includes solo 401(k) plans, but for some esoteric reason it also includes 403(b) plans, so she can contribute $20,500 to the 457(b) and $61,000 across any combination of 403(b) and solo 401(k) assuming she has sufficient income to justify that contribution.

Interesting, first I've heard of that.

[Pootie22]

Thank you guys for the clarification.  That link was very helpful too.

So the 457 does not affect any of the other items, she can max it out at $20,500 without impacting the others.
She can also max the 403b at $20,500 (both 457 and 403b are from the same school employer)

On her Solo 401k, she can't contribute any deferral amount since the $20,500 deferral limit applies to all plans combined.  But would have been able to contribute another $61,000 as employer-side contributions (assuming there's enough income).
But because of the weird 403(b) exception, the 403(b) from her employer counts towards the $61,000 limit from her own business, therefore she can only contribute $40,500 into her Solo 401k (which would require a minimum of $162,000 in income).  Right?

$20,500+$20,500+$40,500 for a grand total of $81,500  not too bad! Thanks again.

[terran]

Mostly right. I think the business income it would take to get to $40,500 of employer profit share contribution would be closer to $215k. Probably somewhat less depending on how much her job pays because higher job income means lower self employment tax if the total is over the social security wage base. Assuming she's taxed as a sole proprietor, not an S-Corp here's a good solo 401(k) contribution calculator. It doesn't account for the 403(b) trick, so you'll have to watch out for that yourself, but otherwise it will tell you how much she can contribute.

Also note that any employer match, if any, at her job would count towards the $61k limit too, not just the employee salary deferral contribution. Although, some places make this contribution (and mandatory employee contributions) to a 401(a) which has a whole different limit.

[Babybalrog]

Mostly right. I think the business income it would take to get to $40,500 of employer profit share contribution would be closer to $215k.

This is true if you want to take advantage of the 20% employer contribution, But if your solo 401 formation documents allow it, you can still make a 40,500 "after-tax" contribution. The business doesn't get the write off, but you can immediately roll over to a Roth. This is part of the Mega-Back Door Roth strategy, just done with a solo 401k.

https://www.mysolo401k.net/
has some good case studies if you can find them.

[MDM]

Since my statement about the solo 401(k)/403(b) combined limit conflicts with SeattleCyclone's here's a source.

That is mysolo401k's business, so it's likely to be correct, but is there a US Code or IRS regulation reference?

E.g., Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits | Internal Revenue Service says "Total annual contributions (annual additions) to all of your accounts in plans maintained by one employer (and any related employer) are limited," while Retirement Topics 403b Contribution Limits | Internal Revenue Service says "The limit on annual additions (the combination of all employer contributions and employee elective salary deferrals to all 403(b) accounts)...."

That supports a distinction between the 401k limit being "per employer" vs. the 403b limit being "per all 403b employers combined" but stops short of saying that, if one is covered by a 403b plan, the limit applies to all employers.

[terran]

Since my statement about the solo 401(k)/403(b) combined limit conflicts with SeattleCyclone's here's a source.

That is mysolo401k's business, so it's likely to be correct, but is there a US Code or IRS regulation reference?

E.g., Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits | Internal Revenue Service says "Total annual contributions (annual additions) to all of your accounts in plans maintained by one employer (and any related employer) are limited," while Retirement Topics 403b Contribution Limits | Internal Revenue Service says "The limit on annual additions (the combination of all employer contributions and employee elective salary deferrals to all 403(b) accounts)...."

That supports a distinction between the 401k limit being "per employer" vs. the 403b limit being "per all 403b employers combined" but stops short of saying that, if one is covered by a 403b plan, the limit applies to all employers.

I think the Authoritative source is to be found in 26 CFR § 1.415(f)-1 - Aggregating plans, in particular paragraph (f)(3): "If a section 403(b) annuity contract is aggregated with a qualified plan of a controlled employer in accordance with paragraph (f)(2) of this section, the plans must satisfy the limitations of section 415(c) both separately and on an aggregate basis."

[MDM]

Since my statement about the solo 401(k)/403(b) combined limit conflicts with SeattleCyclone's here's a source.

That is mysolo401k's business, so it's likely to be correct, but is there a US Code or IRS regulation reference?

E.g., Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits | Internal Revenue Service says "Total annual contributions (annual additions) to all of your accounts in plans maintained by one employer (and any related employer) are limited," while Retirement Topics 403b Contribution Limits | Internal Revenue Service says "The limit on annual additions (the combination of all employer contributions and employee elective salary deferrals to all 403(b) accounts)...."

That supports a distinction between the 401k limit being "per employer" vs. the 403b limit being "per all 403b employers combined" but stops short of saying that, if one is covered by a 403b plan, the limit applies to all employers.

I think the Authoritative source is to be found in 26 CFR § 1.415(f)-1 - Aggregating plans, in particular paragraph (f)(3): "If a section 403(b) annuity contract is aggregated with a qualified plan of a controlled employer in accordance with paragraph (f)(2) of this section, the plans must satisfy the limitations of section 415(c) both separately and on an aggregate basis."

Thanks, that seems to cover it.  Somewhat surprising that such a limitation isn't spelled out in the "Retirement Topics 403b Contribution Limits" page.  There are probably a number of teachers who have self-employment gigs on the side.  Maybe all the solo 401k providers cover this when a person sets up an account, and maybe they don't...?

[terran]

I've had Fidelity and E*Trade at various times and I don't recall seeing anything from either of them. My guess is that most teachers (unless they're mustachians) would be hard pressed to max out the 415(c) limit even between plans. Doctors working for a non-profit hospital and also a private practice in which they have an ownership stake on the other hand...