457, Single 401K question

[Ed Taxes]

Client work and contributes her max to a 457 plan though her employer. She also works part-time as an accountant, 1099 income, and would like to contribute to a single 401K plan. I think she can contribute to both plans. Any ideas?

[appelman]

There is a limit...

on salary deferral contributions -- $16,500 or $22,000 if age 50 or over. This applies PER PERSON, rather than per plan, so elective contributions to the 457 plan will, I believe, reduce the maximum allowable deductible contribution to the solo 401(k).

[Snaggletoof]

Terminology

There is most likely not a 401k plan available to this person if they are self-employed and receiving a 1099. What most likely is occurring would be a SEP or maybe even a SIMPLE. All of them have respective deferral limits and an overall limit as Appelman has posted above.

[New York Enrolled Agent]

on salary deferral contributions -- $16,500 or $22,000 if age 50 or over. This applies PER PERSON, rather than per plan, so elective contributions to the 457 plan will, I believe, reduce the maximum allowable deductible contribution to the solo 401(k).

In general, elective deferrals are aggregated to the limits you reference. However, the limit under §457 is NOT coordinated with the limit under §402(g) that includes 401(k), 403(B) and SIMPLE plans.

Thus a taxpayer (assuming sufficient compensation) could contribute the maximum deferral to both a §457 plan and §401(k) plan.

[Bees Knees]

I agree with NYEA

TTB page 28-21 says:

Coordination with 403(b) plan. The IRS recently issued a private
letter ruling in which it approved separate limitations for salary
reduction contributions to a Section 403(b) tax-sheltered annuity
and a Section 457 plan for the same year. Section 402(g) limits the
amount of elective deferrals contributed tax-free to certain plans,
including 401(k) and 403(b) plans. This limitation does not apply
to a 457 plan. Therefore, the 403(b) contributions did not have to
be aggregated with the 457 contributions. (Ltr. Rul. 200934012)

[Bees Knees]

There is most likely not a 401k plan available to this person if they are self-employed and receiving a 1099. What most likely is occurring would be a SEP or maybe even a SIMPLE. All of them have respective deferral limits and an overall limit as Appelman has posted above.

Actually, Solo 401(k) plans can be set up for sole-proprietors and can allow a much higher percentage of profits to go into the account, verses a SIMPLE or a SEP. TTB page 28-17 says the following

Solo 401(k) plan. A 401(k) plan set up for a sole-proprietor (including
a husband and wife business) with no other employees is
sometimes called a solo 401(k) plan. With no other employees, the
sole participant is deemed to have satisfi ed both the ADP test [Reg.
§1.401(k)-2(a)(1)(ii)] and the ACP test [Reg. §1.401(m)-2(a)(1)(ii)],
thus allowing the sole proprietor to contribute the maximum possible
amount allowed for any defi ned contribution plan.

Example: Tammy is under age 50 and is a self-employed author. She collects
royalties from a publisher who published her novel. Her husband
Corey also works, and they pay most of their bills with his salary alone.
They wish to put away as much as possible to a qualifi ed retirement plan
for Tammy. She sets up a single-participant solo 401(k) plan for herself.
Her net profi t after the one-half SE tax deduction for 2009 is $30,000. She
contributes the maximum elective deferral of $15,500 to the plan. The
ADP and ACP tests have no effect on her elective deferrals as there are
no other employees. The plan is also set up to contribute the maximum
employer deduction allowed under Section 404(a)(3), which is 25% for
employees, or 20% for self-employed individuals. Since elective deferrals
do not reduce compensation for purposes of the Section 404(a)(3)
deduction limit, her employer matching contribution is $6,000 ($30,000 ×
20%). The total of employer contributions ($6,000) plus elective
deferrals ($16,500) equals $22,500, which is 75% of
her total SE earnings.

[appelman]

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