How Much Salary Can You Defer if You’re Eligible for More than One Retirement Plan?
The amount of salary deferrals you can contribute to retirement plans is your individual limit each calendar year no matter how many plans you're in. This limit must be aggregated for these plan types:
- SIMPLE plans (SIMPLE IRA and SIMPLE 401(k) plans)
If you’re in a 457(b) plan, you have a separate limit that includes both employee and employer contributions.
Make sure you don’t exceed your individual limit. If you do and the excess isn’t returned by April 15 of the next year, you could be subject to double taxation:
- once in the year you deferred your salary, and
- again when you receive a distribution.
Elective deferral limit
The amount you can defer as pre-tax or designated Roth contributions to all your plans (not including 457(b) plans) is $17,500 in 2013 and 2014. Although your limit is affected by the plan terms, it doesn’t depend on how many plans you belong to or who sponsors those plans.
You’re 40 years old and defer $2,500 in pre-tax and designated Roth contributions to your company’s 401(k) plan in 2013. You terminate employment and go to work for an unrelated employer and participate in your new employer’s 401(k) plan immediately. The maximum you may defer to your new employer’s plan in 2013 is $15,000 (your $17,500 individual limit - $2,500 that you’ve already deferred to your former employer’s 401(k)). The amount you can defer to both plans can’t exceed your individual limit for that year.
Age 50 catch-ups
If you’ll be age 50 or older by the end of the year, your individual limit is increased by $5,500 (in 2013 and 2014) (the catch-up contribution amount). This means your individual limit increases from $17,500 to $23,000 in 2013 and 2014 even if neither plan allows age-50 catch-up contributions (IRC Section 414(v) and Treas. Regs. 1.402(g)-2).
You’re 50 years old and participate in both a 401(k) and a 403(b) plan. Both plans permit the maximum contributions for 2013, $17,500; but the 403(b) doesn’t allow age-50 catch-ups. You can still contribute a total of $23,000 in pre-tax and designated Roth contributions to both plans. Your contributions can’t exceed either:
- your individual limit plus the amount of age-50 catch-up contributions, or
- the maximum contribution in 2013 for that plan type (for example, you couldn’t contribute the entire $23,000 to the 403(b) plan because that 403(b) plan only allows a maximum contribution of $17,500 in 2013).
Deferrals limited by compensation
Although plans may set lower deferral limits, the most you can contribute to a plan is the lesser of:
- the allowed amount for that plan type for the year, or
- 100% of your eligible compensation defined by plan terms (includible compensation for 403(b) and 457(b) plans).
If you’re self-employed, generally your compensation is your net earnings from self-employment (see Retirement Plans for Self-Employed People).
You are 52 years old and participate in a 401(k) plan with Company #1 and a SIMPLE IRA plan with an unrelated employer Company #2. You’ll receive $10,000 in compensation in 2013 from Company #1 and another $10,000 from Company #2. The most you can contribute to each plan is $10,000 because your deferrals to each employer’s plan can’t exceed 100% of your compensation from that employer, even though your individual contribution limit for 2013 is $23,000 ($17,500 individual limit + $5,500 age-50 catch-up limit). You can’t defer more than $10,000 to either plan (for example, $12,000 to the 401(k) plan and $8,000 to the SIMPLE IRA plan) because your deferrals to each employer’s plan can’t exceed 100% of your compensation from that employer.
15-year catch-up deferrals in 403(b) plans
Your individual limit may be increased by as much as $3,000 if your 403(b) plan allows a 15-year catch-up contribution.
If you’re 51 years old in 2013 and participate in both a 401(k) plan and a 403(b) plan, you may contribute $23,000 in total to both plans, and up to an additional $3,000 to the 403(b) plan if the plan allows and you work for the same employer for 15 years.
The 15-year catch-up is separate from the age-50 catch-up. If you’re eligible and the plan allows both types of catch-ups, your contributions above your annual limit are considered to have been made first under the 15-year catch-up. See Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans), for more information on 403(b) contributions.
Plan-based limits on elective deferrals
Although rare, your plan may limit the amount you can defer to an amount less than the allowed deferrals for that plan type for the year.
You're 52 years old and participate in two 401(k) plans. Each plan limits salary deferrals to the lesser of $5,000 or 100% of your eligible compensation. Although your eligible compensation is $10,000 from each employer sponsoring the plan and your individual limit allows you to contribute $23,000 for 2013 ($17,500 + $5,500 age-50 catch-up limit), the most you may contribute is $5,000 to each plan because of the plans’ deferral limits set by their terms.
A plan with a 401(k) feature may also reduce the amount you can defer to ensure that the plan meets nondiscrimination requirements. The plan may return some of your deferrals even if they don’t exceed your individual limit.
457(b) plan participants
You have a separate deferral limit if you’re also eligible to participate in a 457(b) plan. See 457(b) Plan Contribution Limits.
Elective deferrals - In 2013 and 2014, you may defer the lesser of $17,500 or 100% of your includible compensation to a 457(b) plan. The plan may also permit catch-up contributions.
Catch-up deferrals - the plan may allow age-50 catch-ups of an additional $5,500 (in 2013 and 2014), if it’s a governmental 457(b) plan. Tax-exempt organizations are not eligible for the age-50 catch-ups.
Special 457(b) catch-up deferrals - the plan may allow a special “last 3-year catch-up,” which allows you to defer in the three years before you reach the plan’s normal retirement age:
- twice the annual 457(b) limit (in 2013 and 2014, $17,500 x 2 = $35,000), or
- the annual 457(b) limit, plus amounts allowed in prior years that you didn’t contribute.
If a governmental 457(b) allows both the age-50 catch-up and the 3-year catch-up, you can use the one that allows a larger deferral but not both.
You’re in a 457(b) and a 403(b) plan, each plan allows the maximum deferrals for 2013 and you have enough includible compensation. You may be able to defer:
- $17,500 to each plan, regardless of your age
- $23,000 to the 403(b) plan and $17,500 to the 457(b) plan if you’re age 50 or older by the end of 2013 and the 403(b) plan allows age-50 catch-ups
- $23,000 to each plan if you’re in a governmental 457(b) plan and both plans allow age-50 catch-ups
- $23,000 to the 403(b) plan if it allows and you’re eligible to make age-50 catch-up, and $35,000 to the 457(b) plan if it allows catch-up contributions and you’re eligible for the last 3-year catch-up.
- an additional $3,000 to the 403(b), if you’ve worked for a qualified organization at least 15 years and the plan terms allow these catch-ups.
Distribution of excess contributions
If you do exceed your contribution limits, to avoid double taxation, contact your plan administrator and ask them to distribute any excess amounts. The plan should distribute the excess contribution to you by April 15 of the following year (or an earlier date specified in the plan). For information about taxes on excess contributions, see What Happens When an Employee has Elective Deferrals in Excess of the Limits?
When deciding from which plan to request a distribution of excess contributions keep in mind:
- getting the maximum matching contribution that may be offered
- type of investments
- plan fees
- Contribution Limits
- What Happens When an Employee has Elective Deferrals in Excess of the Limits?
- Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) Chapters 2 and 4