Understanding Contribution Limits on Unrelated Entities and Across Plan Types

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

Q: I read with great interest your Ask the Experts column that references the 415 limit on contributions for an employee working for two entities within the same controlled group. Does the same logic apply if the entities are unrelated? Do the types of plans matter?

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Yes, the same logic applies if the entities are unrelated, and the types of plans sponsored do indeed matter. If the entities are determined by counsel to be truly unrelated (and, once again, as stated in our original column, this is a complicated legal determination beyond the scope of this column), then one 415 limit per employer generally applies (i.e., the two employers would have separate 415 limits.)

However, even with unrelated employers, the types of plans involved can still matter, but only if the employee owns or controls more than 50% of one of the plan sponsors. If there is no such control, there will be separate 415 limits for each employer, regardless of plan type. However, if there is such control, the 415 limit for any 403(b) plan would be combined with any 415 limit for a 401(a) or 401(k) plan. For example, if a doctor has a 403(b) plan through a hospital at which he is employed and also has a 401(k) plan through the private practice where he is more than a 50% owner, the two plans must be aggregated. However, this special rule is unique to 403(b) plans, so if the unrelated employers sponsored 401(a) or 401(k) plans, and no 403(b) plan was present, the 415 limits would be separate for each employer, regardless of whether the employee owned or controlled more than 50% of one of the plan sponsors.

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.

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