Do contributions to 457 plans count towards employee limits for Self-directed 401k contributions?

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Do contributions to 457 plans count towards employee limits for Self-directed 401(k) contributions?

One of the common questions that arise among employees who have both a 457 plan and a Self-directed 401(k) is whether contributions made to their 457 plan would affect the employee limits for their Self-directed 401(k) contributions. To clarify this concern, let’s delve into the details.

Firstly, it is important to understand the nature of both the 457 plan and the Self-directed 401(k). A 457 plan is a retirement savings account typically offered to governmental and certain non-profit employees. It allows individuals to contribute a portion of their pre-tax income toward retirement savings. On the other hand, a Self-directed 401(k), also known as a Solo 401(k), is a retirement savings account designed for self-employed individuals or small business owners and their spouses.

Now, let’s address the question at hand. Contributions made to a 457 plan do not count towards the employee limits for Self-directed 401(k) contributions. These are separate retirement plans with their own contribution limits.

For the year 2021, the employee contribution limit for a 457 plan is $19,500, with an additional catch-up contribution of $6,500 for those aged 50 or older. Meanwhile, for a Self-directed 401(k), the employee contribution limit is $19,500, or $26,000 for individuals aged 50 or older.

This means that if an individual has both a 457 plan and a Self-directed 401(k), they can contribute up to the maximum amount allowed for each plan without blending the limits. For example, a person could contribute $19,500 to their 457 plan and also contribute up to $19,500 to their Self-directed 401(k), for a total combined contribution of $39,000.

It is important to note that while contributions made to a 457 plan do not impact the contribution limits of a Self-directed 401(k), there are some regulations regarding the coordination of contribution limits between different retirement plans. If an individual participates in multiple retirement plans, it is crucial to understand the rules and limits of each plan to ensure compliance.

Furthermore, tax implications and eligibility requirements can vary between 457 plans and Self-directed 401(k)s, so it’s always wise to consult with a financial advisor or tax professional who can provide personalized guidance based on individual circumstances.

In conclusion, contributions made to 457 plans do not count towards the employee limits for Self-directed 401(k) contributions. Individuals with both types of retirement plans can contribute up to the maximum allowed for each plan separately. However, it is essential to stay informed about the rules and regulations of each plan and seek professional advice when needed to optimize retirement savings and comply with tax regulations.