A reader sent me an e-mail some time ago about the interplay between a 401(a) plan and a Roth solo 401(k) plan. You probably heard of 401(k), 403(b), and 457 plans. The names of these plans come from the section numbers in the tax code which specify the rules for these plans.
401(k) plans are offered primarily by private sector employers. Employees in public schools and tax-exempt organizations have 403(b) plans. State and local governments and tax-exempt organizations have 457 plans. Some employers offer both a 403(b) plan and a 457 plan. What is a 401(a) plan then?
Strictly speaking a 401(a) plan is a bit of a misnomer because other kinds of plans including 401(k) plans must also qualify under tax code 401(a). In a loose context, a 401(a) plan is a retirement savings plan in which employees can’t choose or change the amount contributed to the plan. It’s also called a “money purchase plan.”
In a 401(k) plan, employees make so-called “elective deferrals” which means that employees have a choice between (a) contribute to the plan and defer income tax on the contributions; and (b) receive the money in cash and pay the tax. In a 401(a) money purchase plan, either the employer contributes to the plan all by itself OR the employer makes it mandatory for all covered employees and deducts a set percentage from everybody’s paycheck.
As a result, contributions to a 401(a) plan do not count toward the 401(k) “elective deferrals” limit ($16,500 in 2009). If someone has a both 401(a) plan and a 401(k) plan, he or she can still contribute up to $16,500 in 2009 to the 401(k) plan. Contributions to a 403(b) plan or a SIMPLE IRA also count toward the same 401(k) elective deferral limit, but contributions to a 457 plan do not (go figure).
I don’t work in the employee benefits field any more. It still amazes me how many different types of retirement plans we have in the tax code and how they have similar but different rules. We’ve got this alphanumeric soup:
- 401(a) money purchase plan
- 401(k) plan (with Traditional and Roth accounts)
- 403(b) plan (with Traditional and Roth accounts)
- 457 plan (no Roth yet, why?)
- SEP (no employee contributions allowed, why?)
- SIMPLE 401(k) (lower contribution limit than regular 401k, why?)
- SIMPLE IRA (no Roth, why?)
Why can’t we just have one type of plan regardless where you work? The more you look at anything related to the tax code, the more you see it’s a total mess.
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HTC says
I’m 62 and want to retire. I called the NYstate local retirement system and am now very confused. I was told that I could take a lump sum of $5,000 dollars or take monthly payments of $400. and change. Does that mean I will get the $400. monthly payment until I die?
I never thought I would want to retire at this (young) age HA HA.
Thanks for any info.
Harry Sit says
HTC – You will have to have them send you more info in writing. If those are the only two choices, just take the monthly payments of $400 then because $400 a month for one year is close to $5,000 already.
GK says
TFB– Thans for the post but I still cannot understand 50,000 limit rule for 2012.
I have 403b plan where I make voluntary deferrals. I do to max -17000 for 2012
I have access to 401A defined contribution plan- My employer contributes about 8.5% to max 250K of my salary into this regardless if I contribute or not. My salary is 250K, so employer contributes 21,250 into 401A. I have the option of contributing “additional” upto maximum of 50,000 (including employer contribution of 21250). Of course once I decide, the “additional” contributions are fixed and cannot be changed.
Does this mean I can contribute 50,000-21,250=28,750 per year in 401A extra? ( exlcuding my 17K deferral for 403B plan)
Or does this mean I can only contribute 50,000-21,250-17,000= 11,750 into 401A ? ( Includes 17K of 403b plan )
Thanks for your thoughts and efforts in advance
Harry Sit says
GK – The former, excluding your deferral for the 403b plan. The $50k limit is per employer. A 403b doesn’t count for this purpose because you are considered to have exclusive control. See Treasury regulations 26 CFR 1.415(f)-1(f).
“(f) annuity contracts — (1) In general. In the case of a section 403(b) annuity contract, except as provided in paragraph (f)(2) of this section, the participant on whose behalf the annuity contract is purchased is considered for purposes of section 415 to have exclusive control of the annuity contract. Accordingly, except as provided in paragraph (f)(2) of this section, 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.”
J P Curtis says
I recently went to apply for social security and found out that the company I worked for 13 years did not pay social security tax instead had a 401a and a 457. They are telling me that my social security benefits are going to be greatly reduced – is this correct. I told her that it was a 403b however I now find out that it’s a 401 a. I did a roll over when I left that company, however it is a mixture of previous roll overs from other companies and I can’t figure out how to separate out the 401a . Do I have to report thr 401a and the 457 to social security for this time period. On several websites i see reports that 401a does not affect social security benefits but it’s confusing. Do you have any answers for me?
Thanks
Harry Sit says
J P Curtis – A 401a by itself has nothing to do whether an employer and its employees participate in Social Security or not. An employer that is allowed to opt out of Social Security and does opt out of Social Security can have a 401a; an employer that participates in Social Security can also have a 401a. There is no need to separate out the 401a or 457 and report it to Social Security. You and your employer didn’t pay Social Security tax during that period. Therefore you don’t get credit for Social Security for that time.
If you ask other people, many would probably prefer the opportunity not to pay Social Security tax and invest their money and their employer’s match on their own, but they don’t have that choice. So I don’t see your situation as a negative.
401a Dilemma says
I separated from my university 4 years ago and no longer live in the state of New York. I now currently reside in Texas as my home state. I have been trying to do a plan termination with my plan,each time Vanguard sends the paper work over to the university,they continue to reject my request, therefore preventing me from taking my money and moving at my own discretion. I was under the impression that I can take those funds and move it when I am ready.
Can they continue to do this since I am no longer with my previous employer and what are my options?
Thank you
Harry Sit says
Contact the university and find out their rules. Although not common, plans can make you wait until a certain age even if you don’t work there any more. Or maybe they just want you to fill out their form and can’t do the rollover without it.
EMK says
Trying to find out more about 401 (a) and how it relates to payroll:
1- Does it need to appear anywhere on the w2 and if so where?
2- If it is entirely employer funded, does it need to be processed thru payroll?
3-Does it have any impact on tax?
4-Does it have any impact on taxable wages?
5-If employees don’t get w2 for 401 (a), do they get 1099 instead?
Thanks for your help.
B in BC says
Great site!
I have a 457 through my employer and a Roth IRA.
Can I contribute $17,000 to my 457 AND $5,000 to my Roth IRA?
Harry Sit says
Yes.
kevin says
I contributed to a 403B , while employed by a N YC school system for several decades. I am currently employed by another NYC government agency, and contribute to a 457 plan, and receive contributions to an employer sponsored 401A plan. My question is, Can I rollover the contents of the 457, and/or the 401A plan to the 403B plan, and if so, when, in relation to retirement (ie: before,at,after) . Thank you.
Harry says
Kevin – Yes you can rollover, usually after termination of employment or reaching age 59-1/2. See Rollover Chart from the IRS. Your 401a plan is a Qualified Plan in the chart.
Lucio says
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General says
I have 2 jobs. One working for the federal government and other for the state.
Under federal job, I contribute maximum of 17K(+5.5K catchup) a year through TSP plan since they match 5% of my base salary.
Under non-benefited state job (per-diem), I am eligible for 401a, 403b, 457k plans. I have to contribute mandatory 7.5% of my base salary to 401a. I also contribute maximum of 17K(+5.5K catchup) to 457k plan. I forgo non-matching 403b plan since I already have TSP plan from my federal job and TSP plan is similar to 403b/401k plan and can’t have both.
From what I know, I can do this. Is this kosher and acceptable? Thanks.
Harry says
Yes you can do all those: TSP, 401a, 457b.
Jim Baroni says
I began contributing to my city’s 401a plan during that last couple of month of 2010. The plan has an irrevocable clause and it takes a set percentage of my wage earnings with no employer match. I also contribute to the 457plan. I am 55 and had been maxing my 457 contribution with the +50 catch up provision since the year I turned 50. I have scoured the internet for an hour trying to determine what the maximum amount of money I can deffer in 2012 and 2013. I also contributed to a Traditional IRA post tax in 2009 and 2010 but not in 2011 because I believed the maximum to be $49,000 at the time and I was tapping out with max to the 401a and 457. Am I able to take the maximum 457 + the maximum 401a + a tradtional post tax IRA in 2013 if I have the means to fund it? If so what would that figure be?
Harry says
Jim – You can do all three to the maximum including catchup. IRA $6,500; 457 $23,000; 401a your irrevocable fixed % of pay up to $51,000.
Marla says
I worked for a High School in California part time for 24 years. I worked 17 hours per week as a part time employee. I didn’t earn enough credit for social security benefits since the school did not deduct for social security taxes. I was enrolled in a (PARS-ARS) Public Agency Retirement Services-Alternate Retirement systems. An Intrtnal Revenue Code 401(a) qualified governmental sponsored defined contribution retirement plan. The PARS-ARS account balance consists of both employer and employee contributions plus interest and less expenses. I became eligibble to receive the balance of my PARS account in the form of a lump sum distribution after I was terminated with the school job. I rolled over the amount of the lump sum of $16,372 to a IRA. A monthly payment was not an option. I applied for my spousal social security benefit and was told since this was a lump sum that this is considered a pension. Therefore, my social security benefit will be reduced. I don’t believe that this should be considered a pension since it is a contributed retirement plan and it should not reduce my benefit . Please clear this up and let me know if I have grounds to appeal my award.
Harry says
Marla – Yes it counts as a pension but with the lump of only $16,372, I can’t imagine your Social Security benefits would be reduced by much. What did they say it would be reduced by, $20/month, $50/month?
Marla says
When I was having a phone screen with SS they calculated 77.00 a month which seemed like a lot. Forgot to ask over how many years they calculate it. I am 62. Haven’t received my award letter yet with the final amount. I have the opportunity to appeal it if I don’t agree.
Harry says
Marla – The formula is here: Determining a Pension Amount (GPO). Look at the table under D(3)(b). Divide the lump sum by the factor in the table according to the date of the lump sum and your age at that time. Then multiply the result by 2/3. That’s your reduction. For example suppose it was paid after 6/2011 when you were 60, the factor is 142.8. $16,372 / 142.8 * 2/3 = $76.43. So $77 is in the ballpark.
Think of it this way. If your work at the school was covered by Social Security but you still apply for SS as a spouse, you get no credit for what you and your employer paid into Social Security. In other words you wouldn’t even get the $16,372. At least here you still keep 1/3.
General says
Harry,
I’m trying to reduce taxes by putting as much money in my retirement accounts as possible. I’m 50 and has 2 jobs. One as California state employee and other for federal job.
From what I gather, I can get 23K tax deduction from TSP from federal job and CA state job with fixed 7.5% from 401a plan and another 23K from 457b plan.
Anything else I’m missing that I can reduce taxes?
Caren says
Is it a bad idea to rollover an IRA received in divorce into a 401a? Will that make it appear that pension is larger than it is? 401a has $1000, IRA 50,000 but can’t keep in my name.
Gus says
I have a quick question that seems very similar to other people’s questions. I have a 401a through my employer. I recently found out that I also have the opportunity to contribute to a 403b (pre-tax and/or roth) and a 457 (pre-tax and/or roth). All these plans would be through the same employer (the state). As several people said before, I don’t choose my contribution to the 401a (5% of my salary plus 8% match), but what about the 403b and 457? I understand the 457 has a fairly high limit (51k?) and for the 403b would it be the $17,500 limit? Also, what if I chose to open an additional IRA on my own? Would the contributions to the IRA be aggregated with the contributions to the 403b? And on top of all this, could I also open a Roth IRA and contribute $5,500 (I’m not 50 yet)? If you can confirm whether this is right, I would really appreciate it. Thanks!
Harry says
Yes you can do all of them: 401a, 403b, 457, IRA (traditional or Roth). The limits are all separate. Only the traditional IRA and Roth IRA share one $5,500 limit.
Anna B Carter-Bruno says
I have recently retired from a human services organization. I have a 401A retirement plan through my employer. I did not contribute to this plan myself. The funds in this account were entirely from my employer and have not been taxed. A small amount of the funds are in a Roth (about $9,000) the rest of the funds (about $121,000) have not been taxed. This 401A and my social security plus a small savings account are now my only source of income. Where could I contact for advice on how to best handle the retirement account in order to avoid as much tax as possible?
Thank you
Harry Sit says
Vanguard: https://investor.vanguard.com/advice/personal-advisor
Tim Meamber says
Harry –
I’ve learned a lot from the trail of questions and your responses…………thank you. I am in a public sector field. I am currently participating in a 457 “catch-up” provision which allows me to contribute up to $36,000. I also participate in a 401a (% from paycheck). I will soon leave that field with a final 2015 457 contribution of $36,000 and 401a contributions of $13,000 and become self-employed. At that point, can I open and contribute to a solo 401k? And if so, do my previous contributions to either the 457 or 401a have an effect on what I can contribute to the 401k until year’s end? Additionally, I would also like to set up a solo 401k for my self-employed wife, but am unsure if my contributions (past or future) would have an effect on my spouse’s ability to contribute. Reading your original piece and a couple of the past questions/responses, I think I’m okay, but wanted to be sure by asking my specific question. Thank you in advance for your response.
Harry Sit says
You can open solo 401k for your self-employment income. You previous contributions to the 401a or 457 plan have no effect on either your or your wife’s contributions to this new solo 401k.
Susan Macfarland says
I am 70 years old and have an employer only funded 401a account with $2300. I want to transfer it via an institution to institution process to a personal IRA account that already has funds in it but before I do, I have read that I have to make rmd’s so that it is not considered “an excess contribution”. Is that correct? Seems strange since I’m not able to contribute to a regular IRA because of my age.
I plan to transfer the 401a to the personal IRA account to simplify my rmd’s. I have yet another Ira but it is in mutual funds but want to take the rmd’s from the accounts not making any interest. I realize is based on the total amount in all my IRA accounts but I can take my rmd’s all from one account. Is this the best way to accomplish this?
Mrs. Carp says
My husband works for a city that contributes to the AZ state retirement system, a 401a I believe. Turbo tax says we qualify for the retirement savings contribution credit. Are his monthly contributions also considered deductible on our taxes?
Harry Sit says
Mrs. Carp – 401a plans come in different flavors. To qualify for the retirement savings contribution credit, his contribution has to be voluntary and elective (something he can start or stop and change up or down). If it’s just a fixed percentage he can’t change it doesn’t count. The contributions, whether pre-tax or after-tax, are already accounted for on the W-2. You don’t take another deduction on your own.
Hema Chandran Krishnan says
I passed 701/2 years. and still working. My employer is still taking the money out (with my permission) for my 403 B plan and 457 plan. Will I be eligible to get an income tax deduction after I pass 701/2 years old? At what age my tax deduction for 403-B and 457 plans end? Could I get the tax deductions for 403 B and 457 until I retire?
Harry Sit says
You can continue until you stop working for that employer. The money is taken before tax. You don’t take a deduction yourself.
June Worthington says
I worked as an independent contractor for about 5 months earlier in 2015 and now have a employed position with the State of Oregon (for the additional 7 months ) which provides both a 401A match and an optional 457 plan ( which I am funding personally) .
Can I set up a SEP or SEP-IRA plan ( are these the same?) for the time I worked independently and if so do I need to decrease the amount I can save in it by the amount I have saved in my 457 plan ($ 24,000 which includes the catchup provision). If this is an IRA does the SEP-IRA have a different income limit than a traditional IRA?
Thank you for your reply . I have spent a great deal of computer time trying to make sense of this and so far I am not certain . I am afraid my tax person may also not be up to date on this so I wish to know as much as possible .
Harry Sit says
SEP and SEP-IRA are the same. You can do one based on your 1099 income. It doesn’t have to be reduced by your 457 contributions. It doesn’t have an income limit.
Leo says
I have been following your blog for many years now and just cannot say enough good things about it. Thank you.
I have a similar question as Post 53 / 54 by GK above.
I work for an employer where the employer only (and not me) will contribute 22,500 to 401a. I have to option to contribute to a 403b. I plan to put in the max pre-tax 18000. How much more can I put in it OR in 401A?
From your reply it looks like the contributions to 403b do not count towards the annual 54000 max limit on employee + employer contributions.
If 403b amounts are not aggregated / counted) towards the annual 54000 limit, does that mean, I can put a total of 54000 (incl. 22500 from employer) in 401a (employer + employee) AND another 54000 in 403b, since the 403b limit is 54000 as per IRS (as below)?
Thank you.
Limit on annual additions
The limit on annual additions (the combination of all employer contributions and employee elective deferrals to all 403(b) accounts) generally is the lesser of:
$54,000 for 2017
Harry Sit says
That’s correct, however, your own pre-tax and/or Roth contributions to the 403b are limited to $18k a year. The rest has to come from your employer or from non-Roth after-tax contributions if the 403b plan allows non-Roth after-tax contributions. Without those you are not able to reach $54k in the 403b.
Jay says
I have been researching this for a while but have come up empty!
I no longer work for the employer but I still have a 401(a) and 401(k) with roughly $11,000 in each. I am in need of a large home repair and need to withdraw one of them to help me along. I know this is HIGHLY unrecommended, however, I don’t have a lot of help from my parents and I am not even thinking about retirement yet (although I know it is better to start saving now). I haven’t reached my 30’s yet. I know withdraws work the same for both types of accounts but is it better to keep one over the other?
I just assumed it would be easier to cash out the 401(a) and keep the 401(k) but I could be wrong. Any tips, advice, opinions or suggestions would be really helpful!
Harry Sit says
Withdrawing from one isn’t better than withdrawing from the other. However, have you considered getting a loan as opposed to an outright withdrawal? Sometimes you can still get a loan from the plan even if you no longer work there. Or just get a loan from a bank or credit union.
Jay says
I have worked deligently to pay off the debt that I did have to qualify for a mortgage so getting another bank loan is not something I really want to get into. I checked with the accounts but getting a loan from the 401 accounts are only permissible for current employees.
I guess I was trying to decided which one to keep if I could only keep one.
Tracy says
I work for a city and we have a 401(a) plan with a mandatory contribution which the employer matches. My question is are the employee pretax contributions to this 401(a) Pension plan exempt from FICA taxes? Since the deductions are non elective?
And if so, how can I prove this to my employer?
Thank you
Harry Sit says
Employee pretax contributions are not exempt from FICA taxes.
Tracy says
This chart from irs.gov differentiates between elective and nonelective contributions. The contributions I am referring to are nonelective and this chart says they are not subject to FICA. Is this a change in recent years?
Thank you
Tracy says
Sorry, forgot the chart.
https://www.irs.gov/retirement-plans/retirement-plan-faqs-regarding-contributions-are-retirement-plan-contributions-subject-to-withholding-for-fica-medicare-or-federal-income-tax
Harry Sit says
The mandatory or one-time irrevocably elected contributions are non-elective for the purpose of subjecting to the 401k/403b annual contribution limit. They are still considered as coming from the employee as opposed to coming from the employer for the purpose of FICA tax. They are not quite employer matching or non-elective contributions in the IRS chart. For instance employer matching or non-elective contributions can be subject to vesting but mandatory employee pre-tax contributions are not subject to vesting.
Tracy says
Ok, the pension plan is a 401(a) defined Ben/contribution plan.
The employee contributes 6% which is mandatory, they cannot elect out. The City (employer) matches 6%. There is a 5 year vesting for the employer contributions. It is a pension plan with age & years of service eligibility for retirement. Payout is an annuity.
Harry Sit says
To be clear the employee contribution is subject to FICA taxes. The employer contribution isn’t. The eventual benefits payout isn’t subject to FICA taxes either.
Ernest says
Hi Harry,
I haven’t been able to find a clear answer to this question, and I’m hoping you can help me: I have a small amount ($1500ish) in a 401(a) from a previous employer. I did not contribute to the 401(a), it was all employer contributions.
When I left, the 401(a) got automatically rolled over to a traditional IRA. I’d prefer to have these funds into my Roth IRA, but I’m not clear whether I would owe taxes in this conversion or not. Are employer contributions to my 401(a) considered pre-tax for this conversion, so I’d owe tax on the whole amount? Or are they considered post-tax and I only have to pay taxes on the earnings accumulated in the account (making it very similar to a backdoor Roth conversion)?
Thank you so much in advance for your help!
Harry Sit says
It’s all pre-tax.
Ernest says
@ Harry Sit — Thank you very much for the quick reply! And thank you for your site, I’ve learned a ton from it. Happy Easter!
DH says
Hello.
I’ve read all the comments and I think I know the answer to this, but want to be sure.
I’m a State employee and Marine Reservist. Through the State I have a 401(a) plan (when I started work I elected to contribute 7.5% of salary. I cannot change this unless I change State employers), and a 457 plan. Through the military I have the TSP.
I spent most of 2019 in a combat zone. There I contributed $37,000 to my traditional TSP account (from combat zone tax exclusion pay). In 2019 I also contributed (from combat and non-combat pay) $19,000 to my Roth TSP account.
Via my State employer I contributed $2,000 to my 401(a) (tax-deferred), and $16,700 to my Roth 457.
My wife and I (married filing jointly) also each maxed out two Roth IRAs.
The majority of the “professional tax preparers” I speak to howl that I have vastly over contributed. Ditto for the 457 plan administrator. But I don’t see how that can be based on the IRS pubs I’ve read and which are referenced above. My understanding is:
-The 401(a) contributions aren’t even considered employee contributions;
-Elective deferrals for 457 plan and the TSP are not combined, and are $19,000 each;
-The $37,000 contributed to the TSP while in combat zone is considered an employer contribution, and is fine because together with the $19K I contributed, it doesn’t exceed the $56,000 combined employer/employee limit.
Thanks for any confirmation/clarification.
Harry Sit says
I don’t see any problem either.