Current Pension Topics
Can Maximize Contributions

By JOEL L. FRANK

Q.: My son is a photography instructor at a community college in the Midwest. He participates in his employer's 403(b) Plan. Additionally, his self-employed photography business has done exceptionally well this year and he plans on establishing a Simplified Employee Pension Plan (SEP). How much can he contribute to each plan?

Mr. Frank is a fee-only Retirement Financial Planner and a retired NYC High School Teacher of Accounting. He can be reached by telephone at (732) 536-9472, or via e-mail at rollover@optonline.net .

D.N.

A.: Because he does not control his 403(b) employer, he can maximize his contribution to both plans. Internal Revenue Code Section 415(c) sets the limits on annual additions to Defined Contribution plans at $45,000 for 2007. Your son may contribute up to $15,500 to his 403(b) account as an elective contribution with the college contributing up to $29,500. Additionally he may contribute $45,000 to his SEP for a grand total of $90,000 in pre-tax retirement plan contributions.

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Q.: I am currently employed by the Department of Education and participate in the city's Deferred Compensation Plan. I am approaching my 70th birthday and do not plan on retiring for several years. I want to roll over my IRA to the city's 401(k) Plan so that I can postpone my Required Minimum Distributions (RMD) due from the IRA until I retire from the Department of Education. Is this allowed?

A.S.

A.: Yes and No. As you know, Required Minimum Distributions from Traditional IRAs must begin at age 70-1/2 while RMDs from employer plans must begin at retirement if retirement comes after attaining age 70-1/2. Having said that, if your IRA is a "Conduit IRA," which means its only deposits came from employer plan distributions, then you can roll over your IRA to the 401(k) account and make the rollover distribution amount subject to RMD when you retire from the city. If, however, your IRA comes solely from your personal deductible contributions or consists of your personal contributions plus rollover amounts from employer plans, then your IRA is not a "conduit IRA" and is subject to RMD at age 70-1/2 whether or not you effectuate a rollover distribution of your IRA to the 401(k) plan. I would advise you to do the rollover to the 401(k) Plan only if the account is a "Conduit IRA." If the IRA is funded by deductible employee contributions, I would advise you to roll it over to the New York City Employee IRA Plan (NYCE IRA).