(b)lines Ask the Experts – Contribution Limits in Dual Plans

September 6, 2011 (PLANSPONSOR (b)lines) – “I am a physician who owns a private practice who recently commenced employment with a hospital that maintains a 403(b) plan.

“However, I was told by HR that I could not contribute to the 403(b) this year since I had maxed out on my 401(a) private practice plan contribution (I received an employer contribution to this plan of $49,000 in 2011, which I understand is the limit for the plan). My private practice has nothing to do with the hospital; why am I unable to contribute to the 403(b)?  

Michael A. Webb, Vice President, Retirement Services, Cammack LaRhette Consulting, answers:  

First, the experts commend your HR department in preventing you from making an over-contribution in 2011. The rule governing this type of transaction is somewhat obscure, and often misunderstood. The rule is stated in Regulation 1.415(f)-1(f), which, ironically is the same regulation that permits separate 415 limits for 401(a) and 403(b) plans maintained by the same employer. Thus, if the employee in question were NOT someone who had an ownership interest in an employer, not only would contributions to the 403(b) plan be permitted in your scenario, but such contributions would be permitted EVEN if the hospital sponsored BOTH the 401(a) and 403(b) plan!  

However, subsection (2) of this regulation is quite explicit with respect to physicians who own their own practices, or anyone who owns or controls more than 50% of any employer. Such individuals must aggregate ALL contributions to 401(a) and 403(b) plans for this purpose. Thus, the $49,000 which was already contributed on your behalf in 2011, which is the full 415 limit for 2011, means that you cannot contribute additional funds to any 403(b) in 2001, even if the employers are completely unrelated. The regulations actually utilize an example of a private practice physician working for a nonprofit hospital, so it would be difficult for the guidance to be more explicit in this regard.  


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.