A recent poster asked how contribution limits are effected if you have more than one retirement plan. for example, a 403(b) at work and an indivual 401(k) for a side business.

Here is my best shot:

1. Multiple defined contribution plans – usually ERISA qualified: 401(k), 403(b), SEP-IRA – individual 401(k) falls into this category: You can defer the annual salary deferal ($15,500 in 2007) across all plans in aggregate; i.e. if you have 2 or 3 plans, you cannot defer more than $15,500 total for all plans. In addition, employer matches/profit shares cannot exceed the annual maximum contribution of $45k total for all accounts. Additional catch-up contributions are available for those over 50 years old (additional $5k).

2. I don’t think you can deduct an IRA if you have a 401(k), but you can still contribute to an IRA, however, you must make a point of filing the appropriate tax form to tell the IRS you have non-deductible IRA contributions – this sets your basis correctly for future withdrawels. also, you can convert your non-deductible IRA to a Roth IRA (which you can do even if you don’t normally qualify for Roth IRA contributions). Additional catch-up contributions are available for those over 50 years old (additional $1k).

3. a qualified plan 401(k) (defined contribution plan) and a pension (defined benefit plan). This is pretty interesting. You definately need to investigate this with a sophisticated advisor – I believe empty spaces at moneyshaker.blogspot.com is doing something like this. Basically, you have both accounts. You can defer the maximum salary deferal $15,500 to your 401k and then make payments to your pension plan – the exact amount is calculted by an actuary based on your age and the statistical likeliness of you having a pot of $x.xx available by the time you retire. The younger you are the less you can defer. for me in my late 30s, I think it would come to an additional $45k. That’s quite a bit of extra tax deferal.

4. IRAs and Roth IRAs – I’m not sure if you can defer income to both – I doubt it. probably one or the other – anyone have any ideas? I’ve never been qualified for a Roth, so it hasn’t been a priority for me. per anonymous – it’s likely you cannot contribute more than the maximum annual contribution in aggregate.

5. 457 plans allow non-profits and government institutions to offer a second parallel retirement program to 401k and 403b plans. Contributions to a 457 plan (up to $15,500 in 2007 or 20,500 for those over 50) do not affect salary deferal contributions to a 401k plan. 457 plans allow you to double your salary deferal options when combined with a qualified plan such as a 401k or 403b. You can check out an interesting discussion of combined savings here.

Regards, makingourway

PS 2007-02-09: I’ve updated this to reflect over 50 catch-up contributions.

makingourway: Contribution limits for multiple retirement plans