Warning!!!!

It came to our attention this past tax season that a rule changed recently with respect to people who have 403b plans and also want to contribute to a SEP. Basically, there is a $49k annual maximum that an employee can have contributed into a retirement plan on their behalf during the year. This includes employer contributions and employee contributions (but excludes the $5.5k catch-up contribution for people 50 and older).

Somehow, the rules were changed and written in such a way that there is confusion as to whether you need to combine your SEP and 403b accounts when figuring out when you hit the $49k max. So if you work for a hospital that makes their contributions into your 403b account, and you hit the $49k max between your salary deferrals and the employer contributions, then you might not be entitled to contribute to a SEP that year.

Please note that some hospitals contribute to a 401 account for their staff, and others contribute to a pension plan. So if you have a 403b account for your salary deferrals, you can't be certain that your employer is also contributing to your 403b account. The only way to find out is to ask the benefits department at your hospital.

As I said, this rule is poorly written, and there has not been any definitive guidance issued from the IRS. But it is an issue you should be aware of in the event you are having $49k put away on your behalf through the hospital's 403b plan, and you have self-employment income and want to max out your SEP.

More to come......

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