How Do Maximum Elective Deferrals Work in a 403(b)/457(b) Combination?

Q: I read with great interest your Ask the Experts column on maximum elective deferrals to a 403(b)/457(b) combo. I’m a little confused as to how so much money can be deferred—wouldn’t the 415 limit come into play? And does the issue of whether the deferrals are Roth or not impact your calculations? Any clarification on this that you can provide would be greatly appreciated!

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: The Internal Revenue Code Section 415(c) limit on total allocations (employer contributions, employee contributions and forfeitures) does not apply to Code Section 457(b) plans; rather, contributions to such plans are limited to 100% of compensation or the deferral limit (e.g., $22,500 for 2023).

In contrast, Code Section 415(c) applies to 403(b) plans, but this limit typically only comes into play if there is a particularly large employer contribution to a 403(b) plan.

However, such large 403(b) employer contribution amounts are rare, so for the most part, the limits we outlined in our original column apply (and reallocation of forfeitures to participant accounts is equally rare nowadays).

As for Roth deferrals, the contribution limits we have outlined are completely unaffected by whether the deferral is pretax or Roth. This includes the 402(g) elective deferral limit, the 457(b) deferral limit and the 415(c) limit.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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