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.
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 2018 your maximum deferral is $18,500. If you put $5,000 into your 403(b) plan, the most you can contribute to your 401(k) plan is $13,500.
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 2018, your total additions to 401(k) and 403(b) plans, including both your contributions and those of your employer, cannot exceed $55,000. For example, if you and your employer contribute a combined $28,000 to your 401(k), the most you and your other employer could add to your 403(b) plan would be $27,000.
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 $18,500 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.
- IRS: Retirement Topics: 403(b) Contribution Limits
- IRS: How Much Salary Can You Defer If You're Eligible For More Than One Retirement Plan?
- The Finance Buff: 2017 2018 401k 403b IRA Contribution Limits
- Society for Human Resource Management: For 2018, 401K(k) Contribution Limit for Employees Rises to $18,500
- Roth IRA Contributions Vs. 457 Deferred Compensation
- Can Deferred Compensation Be Rolled Into a 401(k)?
- TSA vs. Roth TSA
- Pre Tax Vs. Roth 401(k)
- Can I Put All of My Bonus in My 401(k) to Avoid Taxes?
- Is it Better to Max Out a 403(b) or IRA?
- Can You Have a 401(k) and a TSP?
- Does a 401(k) Contribution Reduce Taxable Income?