I've had a really difficult time determining if I am eligible to contribute to another tax deferred savings plan. Presently I contribute to a 403B at work. My workplace plans on starting a pension soon, but there isn't one in place as of yet. The company would place 3% of my salary per year into a fund of my choosing. I moonlight at the local hospital and receive a 1099-MISC at the end of the year. No taxes are taken out of this money. I assume this qualifies this money as "self-employment" income. I should make about $40,000.00 a year from this money. Assuming I max out my 403B and receive a pension from my other workplace. What can I do with this "moonlighting" money? Is there another plan like a simple that I can set up? I called an advisor at Vanguard and He told me $10,500.00 is the max amount of money that can be tax deferred per year, so I wouldn't be able to do a simple IRA. Now I just watched a money program on TV and this guy is telling me that it may be possible to do a Simple or Keogh with moonlighting money.I'm confused. Can someone help me here?! I'd hate to be sitting on some money that I could invest tax deferred.Thanks.Mike
I believe the guy at Vanguard is correct. The Internal Revenue Code Section 402(g) sets the tax deferral limit for any one individual at $10,500 or 25% of pay whichever is lower. THere had been legislation introduced into Congress this week that will gradually raise this limit to $15,000. However, with the size of the tax cuts the President is proposing, allowing more pre-tax deferrals might have some difficulty passing. Bill
Thanks Bill.I do have another question. Can't people with Keogh plans set aside 20,000 to 30,000 per year? I seem to remember that people who own their own businesses can set aside whopping amounts of money in these plans.Mike
My understanding is that a Keogh is basically a Profit Sharing Plan and a money Purchase plan run together. The profit sharing feature only allows for 15% of pay or $25,500 whichever is less. The percentage drops down to 13.04% of pay for self-employed. To attain the full IRS limit, 25% or $35,000, people then make up the rest with a Money Purchase Plan. Once these limits are reached, then the only other option would be a Defined Benefit Plan. There used to be combined limits between Defined Contribution Plans and Defined Benefit Plans, but the IRS repealed this last year. I believe it was section 415(e).Bill
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