Most people working at private companies have a 401(k) plan, and that’s it. Those who work at educational institutions or non-profits often have a 403(b) plan, which works more or less the same as a 401(k) plan. Some state or local government or tax-exempt organizations also have a 457 plan, which is completely separate, with a separate contribution limit. In 2020, an employee can contribute $19,500 to the 403(b) plan and another $19,500 to the 457 plan. To top it off, some employers also offer a 401(a) plan. A lucky employee working at a hospital can have a 401(a), a 403(b), and a 457 plan all at the same time!
The 401(a) plan can have several different flavors:
(A) The employer simply contributes a percentage of your pay. The employee doesn’t have to do anything. The employee will pay tax on the withdrawals after retirement.
(B) The employee is required to contribute a set percentage of pay pre-tax, with no exception. This can be seen as a variation of (A). Instead of the salary stated on your offer letter, your salary is permanently lowered, and the employer will contribute the remainder into the 401(a) plan.
(C) The employee is asked to contribute a percentage of pay pre-tax, but the decision is one-time and irrevocable. If you choose not to participate, you just miss the boat forever. If you do choose to participate, whatever percentage you choose will stick permanently; no changes are allowed. You have this choice usually only when you first become eligible.
This again becomes a variation of (B), which traces back to (A). Instead of a set percentage, you can choose your own percentage. However, once the percentage is chosen, it again can be seen as permanently lowering your salary and having the employer contribute the remainder to the 401(a) plan.
In all three variations above, even though the money goes into the plan pre-tax, it does not count against the 401(k)/403(b) contribution limit ($19,500 in 2020), because the contribution isn’t elective. The law gives an exception to a one-time irrevocable decision from being counted as elective. This makes it not subject to the limit on elective deferrals across all plans.
(D) This variation is seen less often but some employers offer it. Instead of contributing pre-tax money, you can contribute after-tax money. You are not limited to a one-time irrevocable choice. You can start, stop, increase, or decrease your contribution percentage as you do in a normal 401(k)/403(b) plan. At the time of withdrawal, the contributions are not taxed again but the earnings are taxable. It’s just like a 401(k) or 403(b) plan that accepts non-Roth after-tax contributions. You do a mega backdoor Roth with it.
Because the contributions in the (D) setup are non-Roth after-tax, they also don’t count against the 401(k)/403(b) contribution limit ($19,500 in 2020).
Regardless which flavor of 401(a) you have or any combination of flavors, the contributions do count toward the annual addition limit ($57,000 in 2020). A quirk gives the 403(b) a separate $57,000 limit. If all stars are aligned, you can have $57,000 to the 403(b), $57,000 to the 401(a), and $19,500 to the 457, for a total contribution of $133,500, before any catch-up contributions! Of course most people worry about earning $133,500 before they worry about contributing $133,500 to their retirement plans.
What should you do if you have a 401(a) plan? If it’s flavor (A) or (B), the decision is made for you. There’s nothing you can do. If it’s flavor (C), choose the maximum you are allowed, because you can’t increase it later. If you have flavor (D), first max out 401(k)/403(b) and 457, and then choose the maximum and do a mega backdoor Roth.
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Frugal Professor says
This was fascinating. How do I convince my payroll office to transition from A.) to D.)? This would save me hundreds of thousands of dollars in taxes down the road.
Steve says
For option C, is there no provision for qualifying events? Other than, of course, termination of employment.
Harry Sit says
Qualifying events for distribution? Reaching the retirement age defined by the plan or death.
Steve says
No, for changing your deferral percentage. You already said in the article it can’t be changed, I just want to confirm that it’s no way no how, regardless of disability, marriage/divorce/spousal death, children, employer changing the investment options, nuclear war, etc. The only way to “change” your chosen deferral percentage under an Option C plan, once you’ve set it at initial ire, is to end employment, and thus set it to 0%?
Harry Sit says
One-time irrevocable means no changes, no way, no how. If there’s any way to change it the contributions will be treated as elective, subject to the aggregate $18,000 limit across all plans.
Gus says
This is the first I’ve heard of there being any choice in the percentage at all. At my employer it is fixed. When you start you choose between the DB plan (pension) or the DC plan (a 401(a) plan of type (C), with the employee’s contribution a fixed percentage). The DB vs DC choice is irrevocable.
Harry Sit says
Having choices in the percentage is not common but legal. Searching for “401a one-time irrevocable” found this news report about San Diego County’s plan:
http://www.pionline.com/article/20000612/PRINT/6120747/unusual-features-new-san-diego-plan-offers-employees-a-one-time-opportunity
Gus says
Does age 55 rule apply to 401(a) plans?
Does the IRS (or other government rules) have more restrictive rules for withdrawals and/or rollovers for 401(a) plans than they do for other types of retirement plans, or is this purely plan dependent. (I’m thinking that since the 401(a) may be in lieu of SS or pension, that might make some rules stricter for 401(a) than other plans.)
Harry Sit says
It still applies. No more restrictive rules.
Dayna says
this is the first info I’ve found on the non-elective 401(a) contribution not adding to the $18,000 (2017) limits. I can’t find this on the IRS website. Can you provide a link to the law? I have a 401(a) with one employer, mandatory contribution (option B above), but I’m already maxing my 401(k) with my other employer. I’ve got to confirm that I haven’t over-contributed. Thx!
Harry Sit says
“The limit on employee elective deferrals (for traditional and safe harbor plans) is:
– $18,500 in 2018 ($18,000 in 2015 – 2017)”
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
Note the word ‘elective’.
Dayna says
So the operative word ‘elective’ effectively removes the mandatory 401(a) from the $ limit?
Harry Sit says
Yes, in the same way the speed limit for the road doesn’t apply to airplanes in the sky.
Katie says
Thanks so much for this information.
I understand that mandatory employee contributions in a 401(a) plan do not count toward the annual limit on employee elective deferrals, but what about “mandatory” employer contributions counting toward the overall annual limit on contributions to a participant’s plan account?
Does the employer match in a 401(a) plan count toward the overall limit of $54000 in 2017 ($55000 in 2018)?
Thanks again!
Harry Sit says
It does, whether mandatory or discretionary.
Katie says
Thank you for your prompt response!
One more interesting point on this topic… in doing my taxes this year… I notice that my employer does not report employer contributions to my 401(a) on my W2… so it does not get reported to the IRS. I researched this and from what I can tell there is no law specifying employers even have to report this information. Any thoughts on this would also be appreciated.
Neil says
Can I contribute dollars from other sources to the 401a?
ie. My first employer offers a 401k which I max out on contributions. My second employer offers a 401a type D, I contribute 100% of my income from the second employer to that 401a, but it doesn’t amount to much – below the max conributions for the 401a. Is there a way to take income from my first employer (or cash from my bank account) and put it in the 401a from the second employer.
Harry Sit says
No. 100% of the income from that employer would be your limit.
Ann says
I work for a municipality in CT. We have a 401a (as you describe as “C” in your description). So the Town contributes a percentage and the employee makes a one time non changeable pre-tax election. Do you know where on the W-2 the employee’s contributions should be noted? It is currently being noted in Box 11. They are stating it does not qualify to be in Box 12. But then I’m reading that it may not need to be put anywhere on the W-2? Thank you in advance.
Harry Sit says
W-2 instructions from the IRS: https://www.irs.gov/pub/irs-pdf/iw2w3.pdf
Box 11 isn’t the right place. I don’t know where it should be or whether it should be on the W-2 at all.
Ann says
Thank you!
Dan says
My company uses flavor D and matches contributions up to 3%. They do not, however, match contributions to their 403(b) plan.
1. Are employer contributions still “non-Roth after-tax contributions” (i.e. would this plan still qualify for a mega backdoor roth)?
2. Should I contribute to the 401(a) to get the maximum employer match, and then contribute to the 403(b)?
Thanks!
Harry Sit says
Employer contributions are pre-tax. Yes you should get the match first and then contribute to the 403b.
Elizabeth says
I don’t think this is comprehensive. My husband just became eligible for his company’s 401a plan this year, and he has more options and can contribute up to 100% of his comp – no maximums were noted (he makes well into the 6 figures). In Nov or Dec he was asked to select a contribution amount for 2018, but apparently this is done every year. In other words, it wasn’t a ONE TIME election for the rest of his employment; it was a one time (non-reversible) election for 2018. At the same time, he had to elect how the distributions of 2018 contributions + earnings would be made in retirement (at what age, whether in a lump sum or over the following 10 years, and a couple of other options). That too is irreversible (with a couple of exceptions). He will repeat at the end of this year for 2019 contributions though and can stop participating or elect new contributions and distribution options. That’s my understanding of the paperwork at least.
We are having a hard time with this because suddenly we effectively can contribute an unlimited amount to a tax-deferred plan. But now that we can, the conventional wisdom of “maxing out all retirement options” seems to fall flat. For one thing, distributions are much less flexible – and if he leaves his company before age 55 he will get a lump sum and realize ALL contributions in one year as taxable income. He’s only 40 so that’s a medium size risk if we accumulate a lot in there. And in any event, it might be cheaper to just invest in taxable and pay a lower capital gains rate, especially if we stay in a high tax bracket in retirement (and especially if we favor tax advantaged real estate investments). Good problem to have, but I’m kind of stuck…
Harry Sit says
Sounds like a non-qualified deferred compensation plan to me. I will have to see the document to believe it’s a bona fide 401(a) plan.
Elizabeth says
Yes it is a non-qualified deferred compensation plan. I double checked, and it’s designated a “409a” plan, not a 401a. Sorry for the confusion! And thanks for your response; otherwise I’d have kept googling “401a” and not finding any information relevant to us.
Frustrated with my taxes says
Hello, doing taxes (fun!), and I am having troubling finding IRS guidance on this statement in the article…
Regardless which flavor of 401(a) you have or any combination of flavors, the contributions do count toward the annual addition limit ($54,000 in 2017)….
*A quirk gives the 403(b) a separate $54,000 limit. *
What quirk? Can someone give an IRS link?
THANKS! Ugh all this can be so confusing.
Harry Sit says
IRS Publication 571, page 4, right hand side.
“If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control to determine the total annual additions.”
In other words, the annual addition limit for 403(b) goes with the employee.
Frustrated with my taxes says
“If you participated in a 403(b) plan and a *qualified plan*, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control to determine the total annual additions.”
What I am seeing is that a 401(a) plan is a qualified plan. Per the IRS Internal Code, a qualified plan is…
“For purposes of this section, the term “qualified retirement plan” means—
(1) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),
(2) an annuity plan described in section 403(a),
(3) an annuity contract described in section 403(b),
(4) an individual retirement account described in section 408(a), or
(5) an individual retirement annuity described in section 408(b).
Such term includes any plan, contract, account, or annuity which, at any time, has been determined by the Secretary to be such a plan, contract, account, or annuity.
https://www.law.cornell.edu/uscode/text/26/4974
A 401(a) plan is described in section 401(a) so it would be combined with other qualified plans (403B). Meaning the 401a/403b combined contribution is $54,000 for 2017. Do you see different?
Thanks!
Harry Sit says
A 401(a) plan is a qualified plan, but keep going to the “in which” part. Do you have more than 50% control of the company that sponsors the 401(a) plan?
A very thankful guy says
Hi Harry! Thanks for your very informative post. I have three questions:
(i) When you say that 403(b) has a separate limit from 401(a), does it apply to 401(k) having a separate limit from 401(a) as well?
(ii) I have mandatory contributions in 403(b). Just as you mentioned for 401(a) plan does that mean I can make $18,500 on top of my mandatory contributions to 403(b)?
Some context: I am in a teaching job where my employer considers my academic year salary separate from my summer salary. My employer provides me with:
1) Pension plan: This has 7% pre-tax deduction (mandatory) from my academic year salary and the employer adds some as well.
2) 403(b) plan: For this plan, I need to contribute (mandatory) 3.5% of my summer salary and the employer contributes 3.5% of the summer salary.
3) 457(b) plan: I can contribute pre-tax income only.
4) 401(a) plan: Allows for post-tax income with in-service distribution allowing for mega backdoor Roth as you mention. (They used to have the mandatory 3.5% summer salary in this plan previously as you mentioned but now switched that part to 403(b).)
Additionally, I have a solo 401(k) plan for my self-employment income. (Which I set up after reading your blog. :))
Based on your blog, my understanding is that maximums for me would be $18,500 pre-tax in 403(b) and solo 401(k) combined (+ the employer contributions in both plans +3.5% of my summer salary in 403(b)), $18,500 in 457 (b), and 54,000 after-tax in 401(a). Is this correct?
Harry Sit says
(i) No it doesn’t apply to 401(k).
(ii) I think so. Please verify with your employer.
Your limits will be:
(a) $18,500 employee contribution across 403(b) and your solo 401(k) combined
(b) $18,500 to 457(b) plan
(c) $54,000/$55,000 for total of all contributions to your 403(b) and your solo 401(k) combined
(d) $54,000/$55,000 for total of all contributions to your 401(a), assuming the pension is defined benefit (formula based on salary and number of years).
Heather says
My husband has a 401a plan (flavor A – his employer contributes a portion of his salary) and he had not contributed anything for the 21+ years he’s been there. He’s finally started contributing a modest amount this year. He will be 55 in a few months and will retire; can he then withdraw any amount at any interval without penalty? Can he set up a certain amount to be disbursed to cover him until early SS at 62? Would an annuity for an 8-year period be better?
Harry Sit says
It’s up to the plan when they will allow distributions and whether they will allow partial distributions. Please check with his employer. If they allow partial distributions, the withdrawals will be taxable but he won’t have to pay an early withdrawal penalty. See Age 55 No-Penalty Withdrawals From 401k Plan.
Shaun says
Just curious on a 401a if you can still have a traditional IRA and get the tax deduction for your taxes
Harry Sit says
Only if your income is below the limit. A 401(a) counts as “retirement plan at work.”
https://www.irs.gov/retirement-plans/ira-deduction-limits
Maria says
Hello
When structuring a plan as an employer, may the town set up a 401A employer contribution to be a range? For example: we currently provide only a 457 to employees and we match up to 7%. This program leaves little tax shelter for the employee. We are considering getting a 401a plan and placing the employer contributions into the 401A so that the employee can get the full benefit of a 457 contribution plus their irrevocable choice in a 401A. But the Town match of up to 7% is based on whatever the employee chooses to contribute into their 457; therefore if the employee revises their contribution to the 457, will the employer have the ability to revise their contribution in the 401A?
CuriousInvestor says
My 401(a) plan defines the compensation limit as “not to exceed the employee compensation limit set pursuant to Section 401(a)(17) of the Internal Revenue Code for the calendar year in which the fiscal year begins and proportionately for less than one (1) year of service”.
Am I missing something?
IRS says “In 2018, the annual compensation dollar limit is $275,000. This limit is subject to annual cost-of-living adjustments.”
See https://www.irs.gov/retirement-plans/issue-snapshot-treatment-of-401a17-limitation-in-defined-contribution-plan-in-a-short-plan-year
My plan requires a set percentage from the employer (9%) and a set percentage from the Employee (15%)? Is my max then $66,000 (24% of $275,00)?
Where do you get the $54,000 limit for 401(a)?
Harry Sit says
The percentage calculated off the 401(a)(17) limit is one rule out of many. Whichever comes to the lowest ends up being your real limit. The $54,000 limit for 2017 is set in Section 415(c)(1)(A). It increased to $55,000 for 2018.
“The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2018 from $54,000 to $55,000.”
https://www.irs.gov/newsroom/irs-announces-2018-pension-plan-limitations-401k-contribution-limit-increases-to-18500-for-2018
CuriousInvestor says
Looks like I found the limits in IRS 415!
Scott says
Hi:
My employer offers a 401(a) hybrid with 100% employer contribution going exclusively to a defined benefit. The employee upon hire is given a one time irrevocable decision to apply a certain percentage (5% min. -15% max) of pre-tax dollars to a defined contribution plan where they can manage the investments.
My question is, in this scenario, do the employer contributions to the DB, count against the $55,000 limit(2018)?
Harry Sit says
Contributions to a DB plan don’t count.
Tyler says
My employer took too much out of my salary for the 403b and not enough to max the 457. Can they correct this by transferring monies from the 403 to the 457 and issue a corrected w-2?
patrick caffrey says
I had accumulated some employer contributed money and had 2 years of being vested in a 401a while working 24 scheduled hours per week, but then I changed to 16 hours scheduled hours per week. When I retired my employer (a hospital) said I had to forfeit the vested money from when I worked 24 hours per week because at retirement age I was working only 16 hours per week .
Is this the way it needs to be ?
James Smithson says
My daughter just began a job which offers a 401a, 403b, and 457plan. Can she contribute to all 3 plans at the same time? If so, what are the annual limits for each for 2020? Thank you.
Steve says
In 2020 she can contribute $19500 to her 403b, $19500 to her 457, and theoretically up to $57000 to her 401a.
Busy surgeon says
Hi! Thanks for excellent post about rules for 401(a)-they are hard to find.
A brief question:
I’m 47 years old doctor employed by County hospital (hospital A) I participate in
401(a)-10% of base salary (with employer paying additional (8k). What is the total allowable contribution?
457- deferred com -19k (all me), no employer contribution.
Pension plan Tier 2 SJCERA
I was also offered to take calls in different unrelated hospital (Hospital B) as 1099. Question can I open solo401 (k) for this income and what would be my employee and employer annual limits for this 401k?
Thank you so very much for this useful information
Harry Sit says
County hospital A’s 401(a) is of the (B) variety in this post. The contribution limit is $56,000 in 2019 and $57,000 in 2020. Your 457 contribution is separate. The pension plan is also separate. The contributions at County hospital A do not affect your solo 401k contributions.
You can open a solo 401(k) for your 1099 income in 2020. Use the solo 401k calculator to find out how much you can contribute.
Ilia Gur says
In a 401 k calculator in the “assumptions” there is no line for 401a. Should assume that its’ contribution doesn’t count towards 401K for a “side business”? Isn’t 401a partof the “section 415 ” of the tax code? ( or at least that’s wat I was repeatedly told by pension plan administrators . Please help
Harry Sit says
Section 415 is applied per unrelated employer. When the 401a is from an unrelated employer from your side business, it doesn’t affect your contribution based on the income from your side business.
Brian says
Thanks for another great article. If someone had access to 403(b), 457(b), and a 401(a) plan organized under description (D) in your article and maxed out annual contributions to all three plans, would it still possible for that individual to set up a traditional IRA for themselves then roll the funds from that traditional IRA into a corresponding Roth IRA? I was wondering there any IRS rules that would preclude someone from doing that (or if there’s any other reason not to do it, aside from the additional work to manage yet another investment account). Granted the amount that can be contributed directly to an IRA isn’t a lot in the context of what’s possible with the 403(b)+457(b)+401(a), but if done every year for a number of years it eventually could add up.
Harry Sit says
Yes, that individual can still contribute to an IRA.
Brian says
Thank you, Harry. I have been recently reading your terrific articles on the solo 401(k) for individuals doing part-time self-employed work and am wondering whether contributions to SEP-IRA, SIMPLE-IRA, or solo 401(k) from income earned from part-time self-employment are allowed if someone is maxing out all allowable annual contributions to 403(b)+457(b)+401(a) from one’s day job/main employer under description D above?
Harry Sit says
It depends on which limit is maxed out in the 403(b). Because the 403(b) and the self-employment plans share one annual additions limit ($57,000 in 2020), if the 403(b) already receives $57,000, there’s no more room in self-employment plans. If the 403(b) is maxed out only by the $19,500 limit, plus maybe a few thousand dollars in employer match, there’s still room for SEP-IRA, SIMPLE-IRA, or solo 401(k) contributions from your self-employment income.
Brian says
Thank you, Harry, for this helpful reply. I should have mentioned my employer’s annual contribution limits:
403(b): $19,500 + $6,500 > age 50 catch-up limit
457(b): $19,500 + $6,500 > age 50 catch-up limit
401(a) after-tax defined-contribution plan: $57,000
The employer makes no matches. There is also an additional special catch-up provision for the 403(b) of up to $3,000 per year for up to 5 years for employees who have 15 years at the institution and whose 403(b) contributions are below $100k. I am able to use that and so am contributing $29,000 total per year to my employer’s 403(b).
Since I am also contributing annually to an individual Roth IRA via the backdoor method, I assume I should steer clear of the SEP-IRA and SIMPLE-IRA options because holding those could complicate or preclude the backdoor Roth IRA strategy? If so, that would leave the solo 401(k) as the remaining option for making contributions of earned income from self-employment with the potential to contribute up to $57,000-$29,000 total 403(b) contributions = $28,000. Does that sound correct?
Sam Hicks says
I’m wondering if the employer can establish employee groups with different employer contribution rates for the 401(a). And if so, could the employer change these percentages year to year based on business conditions?
Sam Hicks says
Harry, thanks for your work educating all of us. On another comment, you argued that the 403(b) employer contributions should not be summed with contributions in a 401(a) from the same employee, quoting IRS Publication 571, page 4, right hand side.
“If you participated in a 403(b) plan and a qualified plan, you must combine contributions made to your 403(b) account with contributions to a qualified plan and simplified employee pensions of all corporations, partnerships, and sole proprietorships in which you have more than 50% control to determine the total annual additions.”
Since it’s also a qualified plan, why couldn’t you extend this reasoning to 401(k) employer contributions as well? So long as you have less than 50% control in the corporation, doesn’t this imply the employer could put $57k into an employee’s 403(b) and another $57k into their 401(k). I’m still trying to understand the “403(b) loophole” you mention. If there’s any documentation regarding 401(a) plans and the options A through D you listed, I would appreciate a reference myself.
Finally, I’m a non-profit board member helping evaluate retirement plan options. If anyone knows an advisor that really knows this stuff and is savvy about helping us get started (with low fees for a startup nonprofit), it would be a real help.
Harry Sit says
401(k) and 403(b) are two different sections of the law. They’re similar in many ways but they’re also different in how they count in the annual additions limit. They’re different because the legislators and the regulators said so. They don’t have to be logical and consistent.
I wrote this for the employees. If you’re an employer, please get professional help. Contact ASPPA and ask which of their members are in your area. Or Google “ASPPA member” with your nearest metro area.
Dr Pepper says
I have a question about UC DCP and 401k in the same year.
While at the UC a set percentage of my paycheck (7.5%) was set aside pretax to go into my dcp. I did not have a choice ie it was mandatory. I accumulated about $3k pretax for tax year 2020 in my dcp.
Now I have a new job with access to a 401k. My question is, does the $3k from my dcp (mandatory pretax) count against my $19.5k elective deferral limit for the 401k? I heard from the fidelity rep that it does but I’m not sure after reading this thread…
Thanks Harry!
Harry Sit says
The mandatory contributions don’t count as elective deferrals, because they are mandatory, not elective.
Sasha says
I have a question about how payroll is handling my employer’s 401(a) deduction.
My employer contributes an amount equal to 5% of my annual base salary into a 401(a) account. I get paid every two weeks. On my pay stub, 5% is added to my bi-weekly base salary. Then the base salary amount plus the 5% is taxed, and the 5% amount is listed on my pay stub as a “401(a)-pretax” deduction.
This method seems a little convoluted. Am I paying taxes on the 5% now? If so, will I have to pay again later?
Thanks!
Harry Sit says
You aren’t taxed on the 5% because it’s deducted from your pay “pre”/before taxes are calculated.
Matt W says
Hi Harry,
Thank you for such great content on the website. Also, we bought your book (hard copy) and really enjoyed it.
I have a specific question about my mandatory 401a. On my paystub, it is labeled as “401a optional retirement plan”. On the website for the 401a, it states, “Both the CU 401(a) – mandatory plan and PERA’s 401(k) – voluntary plans are subject to the Internal Revenue Code Section 415(c). If your mandatory plan is the CU 401(a) Plan, and you also contribute to the PERA 401(k) – voluntary plan, the combination of those contributions are subject to the Code Section 415(c) contribution limit of $57,000 for 2020.”
I’m now in a new job with a 401k and trying to figure out how much more I can contribute before the end of the year. Does this statement and the label “optional” on my paystub make it so that I cannot treat it as mandatory??
So is this a way for the university to make something mandatory but not have a loophole? Should I contact their HR? Will they know what I’m talking about?
Thank you!!
Harry Sit says
If you can’t start, stop, increase, or decrease the contribution, that’s mandatory no matter what the paystub label says. The mandatory contribution doesn’t take up your $19,500 401k limit. There’s nothing wrong with that statement about the 401a and the PERA 401k. If you have a 401k and a 401a from the same employer, contributions to both plans added together must not exceed the annual additions limit ($57,000 in 2020).
Matt W says
Ah ok thanks. There is no stopping or changing allowed in this 401a plan. And now I see what they are trying to say with their statement. Thank you very much Harry!
Ami says
Hi Harry,
I discovered you through the WCI and just purchased and read your book. There were lots of easy to follow, practical suggestions in there which have been tremendously helpful. I appreciated how you gave your own examples of the kind of insurance you purchased, banks you use etc…
My question is regarding excess deferral. I work for the federal government and max my TSP each year, 19,5000 this year. About 3200 roth and the rest traditional for 2020.
In 2020, I did moonlighting and also received a W2 from the university hospital where I worked. I discovered too late that I was making automatic contributions to my 403b so I exceeded the 19500 limit by about 1K between the two.
I have submitted TSP form 44 to request for the excess contribution to be refunded ($951) b/c the university said since I didn’t reach max with them i needed to to through my employer.
My question is what to do next.
I was told by a TSP rep that in Jan 2022, I will get an updated 2020W2 along with my 2021 W2. TSP rep also said to report the $951 refund as taxable income this year and that the growth/earning on the excess deferral should be reported as taxable income for 2021.
1. Is this correct?
2. My husband and I file jointly and do our own taxes. Where on turbotax do I report the refund $951 on my 2020 taxes? Miscellaneous?
3. Do I also have to remove the $951 from the deduction section my 2020 taxes since it’s being refunded? How do I do that in turbotax?
Thank you in advance for your help.
Ami
Harry Sit says
I don’t think the part about the revised W-2 is correct. Check the answer from TurboTax Community. Advance everything in that answer by three years. You report the excess deferral as 2020 income yourself without any forms. You report the earnings on the deferral as 2021 income when you receive the 1099-R.
Ami says
Ok, great. The step by step instruction on the website is very helpful. Thank you!
Kay Kay says
My employer offers 403b, 457 and 401a. Among these the employer matches 6% of base salary in the 401a and has a mandatory rule for employee contribution at 6% as well. There are no matches for the 403b or 457. In this case, what will be the maximum contributions limit that I have
Harry Sit says
12% of your base to the 401a + $19,500 to the 403b + 19,500 to the 457 + any catch-up contribution if you’re age 50 or over.
Kay Kay says
Thank you Harry. What if I want to contribute more than 6% that is mandatory for the 401a. Wouldn’t that be included in the 19500 limit since in that case, it is an elective deferral?
Harry Sit says
Many 401a plans don’t allow any additional contributions beyond the mandatory contributions. If your 401a plan allows additional contributions, it’ll be the D setup using after-tax dollars. The plan can still limit the size of after-tax contributions you’re allowed to make, which you’ll have to find out from the plan administrator, but the IRS allows $58,000 minus the 12% of salary already being contributed to the plan between you and your employer.
ZACH YORK says
I have two employers.
Employer A has mandatory 401a contributions, I can and do make elected contributions all of the 401a deductions are done pretax. They also have a 457b that I contribute pretax and Roth.
Employer B has mandatory 401a contributions that are post tax, I am not sure I may be able to make elected contribution HR said no but it looks like I can on the website. They also have a 457b appears that I could make only pretax contributions.
I make most of my contributions Roth as my income will be higher in retirement.
From the information above what does it look like I can contribute maximum currently I am 50 and kept my total voluntary contributions just under the $26000 for 2020?
Harry Sit says
Simple rules assuming the two employers are unrelated:
1) 457 accounts stand by themselves. They don’t affect anything else. The 457 plan from one employer doesn’t affect the 457 plan from a different unrelated employer.
2) If it’s pre-tax or Roth and you can change the amount at any time, keep the total under the annual limit plus catch-up across all employers ($20,500 + $6,500 in 2022). This doesn’t include one-time irrevocable elections.
3) Max out everything else as much as the employer allows.