Special Webinar Question: Other Tax-Advantaged Retirement Plans

Posted by Adam Scherer, CFP®, MS

May 28, 2020

This question is a part of BIF's Special Webinar series which was created to help students affected by the July 2020 CFP® Exam postponement to September 2020.


Pete, age 62, plans to retire at age 65 and in the past few years he has tried to maximize his retirement savings. Pete loves to teach. He has taught high school finance classes for the same school for 40 years. He also teaches part-time at a private test-prep company and part-time for the city through the park district in the summer.  His salary at the high school is $95,000 and Pete earns $15,000 per year at the private test-prep company, and $6,000 each summer through the city. Respectively, his three employers sponsor a Section 403(b) plan, a Section 401(k) plan, and a public Section 457 plan. What is the maximum Pete can contribute collectively to the three plans?

  1. $50,000
  2. $57,000
  3. $25,500
  4. $35,000

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Correct answer: D. $35,000


Instructor insight:

The elective deferral limit is $19,500 plus $6,500 catch-up between the Section 403(b) plan and the Section 401(k) plan combined. Pete is eligible for the special catch-up under the Section 403(b) plan which allows him to defer an additional $3,000. Section 457(b) plan deferrals are not aggregated with other deferrals. Therefore, Pete can defer the lesser of 1) 100% of compensation from the city and 2) $19,500. In this question, Pete can defer 100% of his compensation, $6,000, into the Section 457(b) plan. The maximum deferral total across the three plans is $35,000.


CFP® Exam insight:

Remember that all elective deferrals must be aggregated in applying the applicable limit EXCEPT deferrals into a Section 457 plan.

 

Topics: Practice Questions