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Glen

Thrift Savings Plan And 457?

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Guest Sierra

Joel:

 

If you google "Thrift Savings plan excess contributions" you will find the fact sheet for annual contributions. Part II list the plans that must be aggregated with the TSP as 401k, 403b, 408k and 501©(18). 457 plans are not listed as being aggregated on the fact sheet.

 

The TSP 44 form incorrectly lists 457 plans as being aggrregated with the TSP.

 

 

Intruder: I also noted that on page 4 of Form TSP-44 (1/2008) 457 plans is not listed while it is listed on page 7. But, unlike you, I sought out the TRUTH by calling the TSP at 1-877-968-3778 and asked for a clarification. Representative Dawn told me that page 4 deleted 457 plans in error and that contributions to 457 plans must be aggregated with TSP contributions.

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Guest Sierra

Glen: There is no need to pay a CPA to do what a HS freshman can do. Just call the TSP at 1-877-968-3778 and ask the question.

 

Peace and Hope,

Joel L. Frank

Pension Columnist

The Chief-Civil Service Leader

277 Broadway

New York, NY 10007

 

 

"I work for the government and currently max out my TSP for the $15,500. My first question is can I still contribute to either a 403(b) and/or 457 and have it lower my taxes? My AGI for this year (married filing jointly) is $164,000."

I do not claim to be an expert regarding the TSP, so take this as nonexpert advice: Your deferrals to a 403(b) plan are offset by the TSP (I am guessing), so you cannot also defer to a 403(b) unless you are catch-up eligible. However, if you are eligible for making contributions to a 457(b) plan, these deferrals are only aggregated with other 457(b) deferrals, so you can defer another $15,500 into a 457(b) plan. When I return to the office, I will try to look this up to clarify.

 

John: Do you agree with my conclusion, reached after talking with the TSP?

 

Joel

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Well, I dont know what to do now, I am going to call a CPA and see what he says. I GREATLY appreciate both of your responses and am sorry for any heartburn that this post has caused. Thanks again to both of you. If anyone is interested I will post what the CPA said.

 

Glen

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I have just returned to the office from a continuing education conference, and wow - what happened here! I have to catch up on stuff on my desk first, then I'll try to dig into this tonight. Funny, a 401(k) plan falls under 401(a), and it appears that a TSP does too. Hmmmm. 401(a) points us (via a maze of twisty and sometimes cavernous passages) to a deferral limitation under 402(g), but so far, I see no link to 457(b) regarding deferral limitations. Hmmm... I'll look later tonight and tomorrow to see if I can spelunker further into the code to find a way through to the 457(b) deferral limitation side.

 

Since it appears that 401(a) is a key part of the discussion, here's a copy of Internal Revenue Code 401(a) - it's just one sentence:

 

SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS PLANS.

 

401(a) REQUIREMENTS FOR QUALIFICATION. --A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section --

 

401(a)(1) if contributions are made to the trust by such employer, or employees, or both, or by another employer who is entitled to deduct his contributions under section 404(a)(3)(B) (relating to deduction for contributions to profit-sharing and stock bonus plans), or by a charitable remainder trust pursuant to a qualified gratuitous transfer (as defined in section 664(g)(1)), for the purpose of distributing to such employees or their beneficiaries the corpus and income of the fund accumulated by the trust in accordance with such plan;

 

401(a)(2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees or their beneficiaries (but this paragraph shall not be construed, in the case of a multiemployer plan, to prohibit the return of a contribution within 6 months after the plan administrator determines that the contribution was made by a mistake of fact or law (other than a mistake relating to whether the plan is described in section 401(a) or the trust which is part of such plan is exempt from taxation under section 501(a), or the return of any withdrawal liability payment determined to be an overpayment within 6 months of such determination));

 

401(a)(3) if the plan of which such trust is a part satisfies the requirements of section 410 (relating to minimum participation standards); and

 

401(a)(4) if the contributions or benefits provided under the plan do not discriminate in favor of highly compensated employees (within the meaning of section 414(q)). For purposes of this paragraph, there shall be excluded from consideration employees described in section 410(b)(3)(A) and ( c).

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I max out my TSP for the $15,500, can I still contribute to either a 403(b) and/or 457 and have it lower my taxes?

 

Answer #1a: 457(b) = yes you can contribute here too. Iif you are eligible for a 457(b) plan, those deferrals are not combined with the TSP amounts. I'll explain the problem with the TSP 44 form.

 

Answer #1b: 403(b) = no, you have maxed out here, unless you are eligible for the special 403(b) catch-up.

 

Alright. I see in one prior post, the following comment:

"The TSP operates under 401(a) of the Code. So the TSP contribution is not offset by the 403(b) contribution. So Glen can contribute $15,500 to the TSP and another $15,500 to EITHER a 403(b) or a 457(b)."

 

Let's address this here. TSP, 401(k), 403(b), 408(k), and 501(c )(18) deferral contributions are all combined under one limit for deferrals for an individual. 408(k) is a SARSEP. 501(c )(18) is an employee funded pension plan (only a few of those left in the country). Read Q&A number 8 for a simple explanation:

http://www.tsp.gov/faq/faq6.html#sub8

 

Or look at the top of page 4 here:

http://www.tsp.gov/uniserv/forms/oc91-13w.pdf

 

Next, I see another comment:

"contributions to the TSP, a 401(a) plan, must be aggregated with all other salary deferral plans i.e. 401(k), 403(b) and 457(b). Here is the link: www.tsp.gov/forms/oc91-13.pdf."

 

Let's take a closer look at this. Back in the days before EGTRRA (pre 2002), the deferral limits for multiple plans were more complicated. Let's go back to 1995 and read page 7, first sentence:

http://www.faa.gov/about/office_org/headquarters_offices/ahr/jobs_careers/exec_opportunities/benefits/media/oc91-13w.pdf

 

"The following questions relate to excess deferrals made to both the TSP and another qualified employer plan as described under sections 401(k), 403(b), 408(k),
457
, or 501(c )(18) of the Internal Revenue Code"

That was 1995. Look at how complicated the limits were pre-2002 by also reading the footnote at the bottom of page 7. Remember, the rules changed in 2002, so let's now look at the wording in the current version for 2007:

http://www.tsp.gov/forms/oc91-13.pdf

 

"The following questions relate to excess deferrals (see definition below) made to both the TSP and another qualified employer plan as described under sections 401(k), 403(b), 408(k), or 501(c )(18) of the Tax Code."

By golly, the 457 reference is gone! It's gone because of EGTRRA. Too bad they forgot to remove the reference to 457 on page 7 in paragraph 1. Suppose someone ought to let them know. That appears to be the only place I could see where they forgot to take out the old reference to 457.

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Guest Sierra

By golly, the 457 reference is gone! It's gone because of EGTRRA. Too bad they forgot to remove the reference to 457 on page 7 in paragraph 1. Suppose someone ought to let them know. That appears to be the only place I could see where they forgot to take out the old reference to 457

=====================================================================

 

I max out my TSP for the $15,500, can I still contribute to either a 403(b) and/or 457 and have it lower my taxes?

Answer #1b: 403(b) = no, you have maxed out here, unless you are eligible for the special 403(b) catch-up.

 

John: How could he have maxed out his 403b when he is asking if he can still contribute to a 403b? Please clarify.

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Joel,

 

That is an excellent question. By maxed out, I mean the regular deferral of $15,500 has been met. That's his personal overall deferral limit when combining salary deferrals under TSP, 401(k), 403(b), 408(k), and 501(c )(18). The original post indicates the TSP has been used to meet the 15,500 deferral limitation for regular deferrals.

 

So, perhaps the question is: Can he really defer just a catch-up to the 403(b) plan, assuming he's eligible for the special 15-year catch-up? Well, I am not exactly sure how the logistics of that would work. I will see what I can find and come back to post the findings. This is would be quite rare.

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Joel,

 

That is an excellent question. By maxed out, I mean the regular deferral of $15,500 has been met. That's his personal overall deferral limit when combining salary deferrals under TSP, 401(k), 403(b), 408(k), and 501(c )(18). The original post indicates the TSP has been used to meet the 15,500 deferral limitation for regular deferrals.

 

So, perhaps the question is: Can he really defer just a catch-up to the 403(b) plan, assuming he's eligible for the special 15-year catch-up? Well, I am not exactly sure how the logistics of that would work. I will see what I can find and come back to post the findings. This is would be quite rare.

 

 

See P 18 col 3 of the 1040 instructions which defines the maximum deferral as $15,500 unless the $3,000 additional deferral for 403b plans is available in which case the deferral is increased to $18,500 without the $5,000 over 50 catch up. All the participant does is add up all of the deferrals for 401k,403b, SAR-SEP and 501©(18) plans to which he makes contributions. Therefore a participate can defer $15,500 under a 401k plan and an additional $3,000 under a 403b plan if otherwise eligible.

 

You could also read reg. 1.402(g)-1(b) which defines the maximum deferral under 402(g) as the sum of all contributions under 401k, 403b, 408k and 501©(18) in a taxable year. Since IRC 402(g)(8) allows an additional deferral under 403b, the maximum deferral from all of the above plans if a taxpayer participates in a 403b plan is $18,500 or $23,500 if the taxpayer is age 50.

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Thanks intruder.

 

With regards to this rare "catch-up only deferral" scenario that we have stumbled into, I think the 403(b) plan administrator might want to know that the deferral should be treated as a special catch-up so they can properly track the remaining catch-up under the lifetime $15,000 limit. It's likely the responsibility of the participant to let them know. This points out a potential tracking problem for a 403(b) plan with regards to that special 15-year catch-up.

 

Anyway, the questions of the original post appear to have been answered.

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Thanks intruder.

 

With regards to this rare "catch-up only deferral" scenario that we have stumbled into, I think the 403(b) plan administrator might want to know that the deferral should be treated as a special catch-up so they can properly track the remaining catch-up under the lifetime $15,000 limit. It's likely the responsibility of the participant to let them know. This points out a potential tracking problem for a 403(b) plan with regards to that special 15-year catch-up.

 

Anyway, the questions of the original post appear to have been answered.

 

 

But how is the SD administrator going to do this? Under 1.402(g)-1(e) it is the employee's reponsibility to determine the amount of the salray deferral including the 3,000 catch up and request a refund of the excess when contributions to two or more plans exceed the 402(g) deferral limit. Salary deferrals are reported on each w-2 the employee receives and are coded D-G depending on the type of plan. Column 3 on P18 of the 1040 instructs the taxpayer to add excess deferral to wages on line 7. In the odd case where an employee with 15 years of service with a SD defers 3,000 to a 403b plan and $15,500 to a 401k plan the SD will only report $3,000 which is well below the 402(g) limit. If the employee contributes up to an additional $5,000 above the 15,500 limit the IRS will presume that the employee is eligible for the 5,000 catch up because there is no designation of whether the employee is over 50 on the w-2. It is unknown if there would be an inquiry by the IRS if the employee defers $23,500 because the SD w-2 is coded for a 403b plan.

 

Of course where the employee only contributes to one plan, such as a 401k or 403b plan the employer is responsible for making sure that the deferrals are limited to the appropriate amount under 402(g).

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Guest Sierra

Thanks intruder.

 

With regards to this rare "catch-up only deferral" scenario that we have stumbled into, I think the 403(b) plan administrator might want to know that the deferral should be treated as a special catch-up so they can properly track the remaining catch-up under the lifetime $15,000 limit. It's likely the responsibility of the participant to let them know. This points out a potential tracking problem for a 403(b) plan with regards to that special 15-year catch-up.

 

Anyway, the questions of the original post appear to have been answered.

 

 

John: I just got off the phone with a supervisor at the TSP. She related to me that the omission of 457 on page 4 of the form is in error and will be corrected when the form is updated for January, 2009. This was the second call I placed with the TSP dealing with this issue and both calls yielded the same answer: TSP CONTRIBUTIONS MUST BE AGGREGATED WITH CONTRIBUTIONS MADE TO A 457 PLAN .

 

I will be informing the readers of The Chief-Civil Service Leader about this issue.

 

Peace and hope,

Joel L. Frank

Pension Columnist

The Chief-Civil Service Leader

277 Broadway

New York, NY 10007

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Thanks intruder.

 

With regards to this rare "catch-up only deferral" scenario that we have stumbled into, I think the 403(b) plan administrator might want to know that the deferral should be treated as a special catch-up so they can properly track the remaining catch-up under the lifetime $15,000 limit. It's likely the responsibility of the participant to let them know. This points out a potential tracking problem for a 403(b) plan with regards to that special 15-year catch-up.

 

Anyway, the questions of the original post appear to have been answered.

 

 

John: I just got off the phone with a supervisor at the TSP. She related to me that the omission of 457 on page 4 of the form is in error and will be corrected when the form is updated for January, 2009. This was the second call I placed with the TSP dealing with this issue and both calls yielded the same answer: TSP CONTRIBUTIONS MUST BE AGGREGATED WITH CONTRIBUTIONS MADE TO A 457 PLAN .

 

I will be informing the readers of The Chief-Civil Service Leader about this issue.

 

Peace and hope,

Joel L. Frank

Pension Columnist

The Chief-Civil Service Leader

277 Broadway

New York, NY 10007

 

 

I guess they didnt you the citation of authority for that statement.

 

There are only two ways the supervisor's statement is correct:

 

1. The TSP is the only 401k plan in which 457 plan contributions must be aggregated since neither 402(g) or 457© requires such aggregation.

 

2. If it is a 401(a) plan then all of the state and local government and non profit organizations who maintain 457b plans are employers who are more than 50% owned by the US government under IRC 414(b) of 414© which requires aggregation of 457 plan contributions under IRC 415©. LOL

 

As a president once said "Be glad you dont get all of the government you pay for".

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From the website: at http://www.tsp.gov/faq/faq6.html#sub8 (you'll have to type that in the web address box to get there)

 

8. How much can I contribute?

 

skip to 2nd paragraph for brevity sake:

 

If you have another eligible employer plan described under sections 401(k) or 403(b) of the Internal Revenue Code, or if you are a member of the Ready Reserve or National Guard and have a civilian TSP account, the total of all your contributions to all of your plans cannot exceed the Internal Revenue Code's elective deferral limit. However, if you also participate in a Section 457 plan, your contributions to the TSP are not limited by any of your contributions to your section 457 plan.

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Guest Sierra

From the website: at http://www.tsp.gov/faq/faq6.html#sub8 (you'll have to type that in the web address box to get there)

 

8. How much can I contribute?

 

skip to 2nd paragraph for brevity sake:

 

If you have another eligible employer plan described under sections 401(k) or 403(b) of the Internal Revenue Code, or if you are a member of the Ready Reserve or National Guard and have a civilian TSP account, the total of all your contributions to all of your plans cannot exceed the Internal Revenue Code's elective deferral limit. However, if you also participate in a Section 457 plan, your contributions to the TSP are not limited by any of your contributions to your section 457 plan.

 

 

John: And this is why, along with the contradictions on pp 4 and 7 of publication TSP-44, I placed two calls into the TSP office and each time the supervisor said 457(b) contributions are treated the same as contributions to 401k and 403(b). Shall I place a third call?

 

Joel

 

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From the website: at http://www.tsp.gov/faq/faq6.html#sub8 (you'll have to type that in the web address box to get there)

 

8. How much can I contribute?

 

skip to 2nd paragraph for brevity sake:

 

If you have another eligible employer plan described under sections 401(k) or 403(b) of the Internal Revenue Code, or if you are a member of the Ready Reserve or National Guard and have a civilian TSP account, the total of all your contributions to all of your plans cannot exceed the Internal Revenue Code's elective deferral limit. However, if you also participate in a Section 457 plan, your contributions to the TSP are not limited by any of your contributions to your section 457 plan.

 

 

John: And this is why, along with the contradictions on pp 4 and 7 of publication TSP-44, I placed two calls into the TSP office and each time the supervisor said 457(b) contributions are treated the same as contributions to 401k and 403(b). Shall I place a third call?

 

Joel

 

 

Joel:

 

Instead of placing phone calls to a call center why dont you spend some time researching the IRC and the regulations to demonstrate how the TSP is the only plan subject to the $15,500 limit for elective deferrals under Reg 1.402(g)-1 (see IRS Pub 525, P 8-9) which must be aggregated with contributions to a 457b plan, even though the regulation does not provide for aggregation of 457 deferrals with deferrals under 402(g). You could also explain why aggregation of 457 deferrals with the TSP is required in the absence of such a requirement under IRC 457©.

 

 

 

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