Do 403(b) & 401(k) Limits Combine?

Working multiple jobs has its drawbacks, but depending on your employers, it might allow you to contribute to both a 401(k) plan and a 403(b) plan in the same year. However, the contribution limits combine for the two types of plans, which limits how much you can set aside each year even though you have multiple employer plans.

TL;DR (Too Long; Didn't Read)

The maximum deferral and total annual addition limits for 403(b) and 401(k) accounts do combine. Going over can cause undesirable tax consequences.

Combined Deferral Limits

401(k) and 403(b) plans are both employer-sponsored retirement plans that allow you to save tax-deferred dollars that your employer can choose to match. The main difference is that 403(b) plans are only available to non-profits. Though you can contribute to both a 401(k) and a 403(b) plan, each dollar you put in a 403(b) plan reduces the amount you can contribute to a 401(k) plan.

For example, as of 2019, your maximum deferral is $19,000. If you put $5,000 into your 403(b) plan, the most you can contribute to your 401(k) plan is $14,000.

Combined Total Addition Limits

Besides your elective deferral limits combining on 401(k) and 403(b) plans, the total annual addition limits also combine. As of 2019, your total additions to 401(k) and 403(b) plans, including both your contributions and those of your employer, cannot exceed $56,000. For example, if you and your employer contribute a combined $29,000 to your 401(k), the most you and your other employer could add to your 403(b) plan would be $27,000.

Avoiding Excess Contributions

Your employer generally monitors your contributions each year to make sure that you aren't going over the limits for that employer's plan. For example, if the annual contribution limit is $19,000 and you try to contribute $20,000, your employer will usually catch the mistake and stop the excess contribution.

However, when you have 401(k) and 403(b) plans with different employers, your employers won't know about the other plan to prevent you from contributing too much. Therefore, the IRS makes it clear that it is your responsibility to monitor your contributions to all your plans to make sure you aren't contributing too much.

Excess Contribution Effects

Contributing too much to your 401(k) plans and 403(b) plans in the same year results in a nasty tax consequence: the IRS taxes the excess contribution not once, but twice. First, in the year you make the excess contribution, you have to include it in your taxable income. Second, when you later take the distribution, you must report it as a taxable pension and annuity distribution.

To avoid unnecessarily contributing more than you have to to Uncle Sam, you can correct your excess contribution by taking the excess out before your tax filing deadline.

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