Understanding retirement plans can be complex. That’s especially the case when you are contributing to both a 403(b) plan and a solo 401(k) in the same year.
It might be news to you, but if you are contributing to a solo 401(k) plan in addition to a 403(b) plan at your “day job”, you might have some challenges determining your maximum annual contribution under each plan.
This post discusses how contributing to these two plans can impact contribution levels. Let’s jump in.
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Background
We work with people who contribute to all kinds of retirement plans. As such, it’s not uncommon for us to deal with clients who are contributing to multiple plans in a given year.
Many of our clients are physicians. They might work at a hospital during the day and then do locums work or independent contracting on the side. In this situation, it is normal that they’re maxing out their 403(b) plan at the hospital but still looking to get money into a 401(k) or a Mega Backdoor Roth.
As a result, questions often arise when someone contributes to multiple plans. Most defined contribution plans are driven by the same employee deferral limits and annual contribution limits. But combining the plans is often a challenge.
Before we talk about the combination rules, let’s briefly discuss what a 403(b) plan is. We won’t discuss 401(k) rules because I’ll assume that you have a good understanding of them.
What is a 403(b) Plan?
A 403(b) plan is a retirement plan for certain government employees and employees of certain non-profit companies. Participant accounts in a 403(b) are typically a custodial account that is invested in mutual funds.
Both plan types have a lot in common relating to tax benefits, contribution amounts, and other features. They also share many critical advantages and disadvantages.
In reality, a 403(b) plan is very similar to a 401(k) plan. They’re just issued by different qualifying businesses. You can find out more about 403(b) plans in Publication 571.
Employee deferral and annual contribution limits
401(k)and 403(b) plans are both defined contribution plans. They also have the same annual contribution limits. The contributions are divided into two limits:
- Employee deferral limits (covered under IRC 402(g))
- Annual contribution limits (covered under IRC 415(c))
The 2025 limits are presented in the table below:
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| Contribution Limit for 2025 | Amount |
|---|---|
| Deferral for under age 50 | $23,500 |
| Deferral for age 50+ (including catch-up) | $31,000 |
| Maximum for under age 50 | $70,000 |
| Maximum for age 50+ (including catch-up) | $77,500 |
If you are enrolled in a 403(b) plan through your day job employer and a solo 401(k) sponsored by your self-employed business, your annual contributions to both plans are typically affected.
How do the limits work if you have multiple plans
Let’s first discuss the general rule when combining multiple plans and then we can discuss the 403(b) exception.
General rule
As a general rule, if you contribute to multiple plans under separate control groups, you don’t have to combine the annual limits. This allows you to make overall higher contributions.
The annual addition limit of $70,000 is separate for each “unaffiliated employer”. Said differently, you have an additions limit for each control group.
This general rule is a nice benefit for small business owners. They are able to get a safe harbor contribution and/or profit-sharing contribution from their day job employer, while still being able to make a maximum annual contribution limit on their solo 401(k) plan.
In fact, if you had multiple day jobs, you could take advantage of all these employer contributions without any limitations. Not a bad deal!
403(b) exception
But 403(b) plans are an exception to the general multiple employer rule. A 403(b) plan is considered controlled by the 403(b) participant. The control group rules come into play if the participant has a controlling interest in a business that has a solo 401(k) plan. Here is what the IRS says in publication 571:
Is a Cash Balance or Defined Benefit Plan Right For You?
So, if you are contributing to both plans, for purpose of the plan contribution limits, you are treated as if you are participating in one employer’s retirement plan. The 403(b) contributions would be aggregated with the contributions made to the solo 401(k) plan for purposes of the 415 annual additions limit.
You must aggregate your 403(b) employee + employer contributions with the solo 401(k) employee + employer contributions. This limits your aggregate contributions of both plans to $70,000, plus a catch-up contribution of $7,500.
However, if an organization offered a 401(k) instead of a 403(b) plan, you would be able to contribute an aggregate of $140,000 plus the catch-up amounts. This, of course, is a much better deal!
The employee deferral limit is a per person and per year limit. It applies cumulatively to both your “day job” 403(b) plan and your solo 401(k) plan.
So, if you have already reached the employee deferral limit in your employer’s 403(b) plan, you cannot make additional employee deferral contributions at the pre-tax or Roth levels in your solo 401(k) plan. The 403(b) contribution aggregation rule is a 403(b) regulation and is NOT a solo 401(k) rule. Take a look at what Publication 571 specifically says:
Mega Backdoor Roth and After-Tax Contributions
A Mega Backdoor Roth is a powerful retirement savings strategy that allows individuals with high incomes to contribute additional after-tax dollars to a 401(k) plan and then convert those contributions into a Roth IRA or Roth 401(k). This strategy enables people to bypass the traditional Roth IRA income limits while potentially sheltering more money from taxes in retirement.
To execute this, the 401(k) plan must allow after-tax contributions beyond the regular pre-tax and Roth contribution limits and also permit either in-plan Roth conversions or in-service rollovers to a Roth IRA. With these features in place, individuals can significantly enhance their retirement savings with the potential for tax-free growth and withdrawals in the future.
Just like employee pre-tax and Roth contributions to a 401(k) plan, after-tax contributions are part of the 402(g) limit and also apply to 403(b) plans. In addition, the 402(g) limit applies on a combined basis to elective deferrals that are made to a 401(k) plan and 403(b) plan. As a result, the 403(b) rules impact the ability to utilize the Mega Backdoor Roth strategy.
403(b) and 401(k) Combination Example
A 46-year-old physician works for a non-profit hospital, which provides him with a 403(b) plan. He made an employee deferral of $20,000 into the plan and the hospital contributed another $5,000.
The physician also has an LLC that is taxed as a sole proprietor. This LLC made a net profit on Schedule C of his 1040 tax return of $300,000.
Since a solo 401(k) plan is a qualified defined contribution plan, the solo 401(k) plan for the LLC must be aggregated with the 403(b) plan for purposes of applying the limitations of section 415(c) and §1.415(c)-1.
Because he is required to aggregate the 403(b) plan annual additions with the solo 401(k) plan annual additions of a business with over 50% ownership, his maximum profit-sharing is $41,500. Take a look at the table below:
| Type | 403(b) | 401(k) | Total |
|---|---|---|---|
| Employee Deferral | $20,000 | $3,500 | $23,500 |
| Employer Contribution | $5,000 | $41,500 | $46,500 |
| Total | $25,000 | $45,000 | $70,000 |
Bottom line
Understanding retirement plans can be complicated, especially when contributing to multiple plans in a single year. In practice, we see a lot of physicians that work at a hospital and then have side income or “locums” income. Questions then arise regarding contribution levels when someone participates in both a 403(b) plan and a solo 401(k) plan.
If you are contributing to both a solo 401(k) plan and a 403(b) at your day job, you will likely need to aggregate your contributions to determine your maximum annual contribution.
