teacher retirement plan and IRA

[ssj0302]

Teacher is enrolled in state retirement plan. Teacher is also an independent contractor with her own business. Can teacher also contribute to SEP or IND 401(k) plan for her seperate business and additional salary deferral or tax deductions?
Thanks

[alan-oniras]

State retirement plan options vary widely from state to state and may include DB, DC, or combined plan options. The options for the separate business depends on exactly what type of plan the teacher participates in with the state.

[ja]

If the plan is a DC plan (like a 403b), it is most likely that you would be able to operate a SEP under her business, but the aggregate contributions are still limited to the Sec 415 limit of 49,500 from both plans. So if the total 403b contributions were 30k, you could contribute an additional 19,500 (subject to the 25% restriction of a SEP obviously). This of course is one scenario not considering catch-up contributions if the client is over 50 and as Alan already noted, it depends on the state plan. More info needed.

[alan-oniras]

Joe is correct, but the underlying rules are a frequent source of confusion.

Basically, the 415 limits apply per employer or controlled group, but the surprise emanates from the rule that the 403b participant is considered to be the employer for 415 purposes only. So when that employee holds a 50% or greater interest in his separate firm, the contributions to both plans must be aggregated. In addition, the monitoring of this limit now falls to the 403b sponsor, so employees that have side businesses can expect to be questioned about the status and contributions to that business, and the 403b contributions are then subject to reduction to fall under the 49,500 limit.

The following explains this and more:
https://www.mysavingsatwork.com/taxexem ... rticle.pdf