What’s the 403(b) maximum contribution?
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Published 10:11 a.m. UTC Nov. 6, 2023
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Key points
- A 403(b) plan allows employees of nonprofit organizations, schools and churches to invest for retirement in a tax-advantaged way.
- Workers can contribute up to $23,000 of their income to a 403(b) plan, with an additional $7,500 allowed for workers 50 and older.
- 403(b) contribution limits are the same as 401(k) contribution limits.
Most people are familiar with the 401(k), which is a workplace retirement plan available to many employees.
But what about 403(b) plans? These accounts aren’t as common since they’re available only to certain employees. But they have many of the same benefits as 401(k)s.
Like with other retirement plans, there’s a limit to how much an employee can contribute to a 403(b) account each year. Keep reading to learn how 403(b)s work, their contribution limits for 2024 and how they differ from other retirement plans.
How does a 403(b) work?
A 403(b) plan — also known as a tax-sheltered annuity — is an employer-sponsored retirement plan offered by nonprofit organizations, churches and public schools. These plans allow employees to save for retirement in a tax-advantaged way.
Employers establish 403(b) plans for their employees, who can contribute a certain amount of money each year. Those funds are then invested in annuity contracts through insurance companies or in custodial accounts invested in mutual funds.
There are generally two types of 403(b) plans. With a traditional 403(b), employees contribute pretax money. The money grows tax-deferred in the account, and withdrawals are subject to ordinary income taxes during retirement.
With a Roth 403(b), contributions are made after tax, meaning they won’t save employees money in the current year. However, employees never have to pay taxes on those funds again. The money grows tax-free in the account and can be withdrawn tax-free during retirement.
Once you’ve contributed money to your 403(b), it’s designed to stay there until retirement. In most cases, the IRS imposes a financial penalty on distributions before age 59½.
“There are other ways for employees to withdraw money from their plan, including loans, hardship distributions, and distributions due to certain qualifying situations such as disability or death,” said Michael Reeder, a certified public accountant and the managing partner of Swartz & Reeder Advisors.
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What are the current 403(b) contribution limits?
The federal government sets contribution limits for 403(b) plans and other retirement accounts each year.
The federal government sets 403(b) contribution limits. “The IRS has steadily increased contribution limits since 1986 to reflect the increase in the cost of living,” said Herman Thompson, a certified financial planner with Innovative Financial Group.
The more money contributed to pretax retirement plans, the less tax revenue there is for federal and state governments. These caps also help ensure that high-income workers don’t benefit from these plans more than the average worker.
Elective deferrals
In 2024, employees can contribute up to $23,000 per year to their 403(b) plan, up from $22,500 in 2023. Employees can reach this limit by contributing about $1,915 monthly to their retirement plan.
Note that 403(b) contribution limits apply to the investor, not the plan.
“This is important to remember if you change jobs and are looking to maximize your contributions,” Thompson said. “You are still beholden to the total contribution limit for the year.”
Catch-up contributions
The IRS also sets limits for catch-up contributions. Workers 50 and older can make catch-up contributions to their 403(b) plans as a way to increase their retirement savings. In 2024, the catch-up contribution limit for workers 50 and older is $7,500.
A 403(b) plan may also offer a special catch-up contribution, allowing employees with at least 15 years of service to contribute more to their plan. This catch-up contribution is the lesser of the following:
- $3,000.
- $15,000 minus the employee’s additional elective deferrals in previous years under this rule.
- $5,000 times the number of years of service minus the total elective deferrals made in previous years.
Employer matching
The limits above apply only to contributions from employees. Employers also have the option of contributing to their employees’ accounts. Many employers do so by matching contributions, agreeing to match their workers’ contributions up to a percentage of their salaries. However, employers can contribute to their employees’ accounts regardless of whether the workers themselves contribute.
In 2024, the combined limit for employer contributions and employee elective salary deferrals is $69,000. However, the amount contributed can’t exceed 100% of an employee’s yearly compensation. So if your income is less than $69,000, your total 403(b) contributions also must be.
“It’s important to note that an employer does not have to match an employee’s contributions, but may do so as a part of the way they’ve structured the 403(b) plan,” Reeder said.
Historical limits
As mentioned, the IRS periodically increases the 403(b) contribution limit to keep pace with inflation. The chart below shows the contribution limits dating back to 2015.
403(b) vs. 401(k) vs. IRA contribution limits
403(b)s aren’t the only retirement plans with an annual contribution limit. Other plans, such as 401(k)s and individual retirement accounts (IRAs), also limit the amount workers can contribute.
401(k) plans are regulated by many of the same rules as 403(b) plans. As a result, they have identical contribution limits. The only difference is that 401(k) plans don’t have the provision that allows an additional catch-up contribution for employees with at least 15 years of service.
Not only do 403(b) and 401(k) plans have the same limit, but the limit applies to both plans for a single employee.
Example: If you have access to both a 401(k) and a 403(b), you can contribute only up to $23,000 for both plans combined. If you contribute $23,000 to your 403(b) plan, you won’t be able to contribute to your 401(k) plan at all.
IRAs have considerably lower contribution limits. These plans aren’t offered by employers. Instead, they are opened and managed by individuals directly with brokerage firms. In 2024, the IRS allows workers to contribute up to $7,000 or, if less, 100% of their income. There’s an additional catch-up contribution of $1,000 per year for workers 50 and older.
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How to max out your savings
The thought of contributing $23,000 a year to a 403(b) plan can seem daunting, and it may not be within reach for everyone. However, you can follow these steps to get as close as possible.
- Contribute enough to max out your employer’s match, if offered. For instance, if your employer will match contributions up to 3% of your income, make sure you are depositing at least that much into your 403(b) account.
- Know vesting rules. You only get to keep your employer’s contributions and match if you are vested in the plan. In some cases, that can require you to work as long as six years for a company. Understand how your plan works and be strategic about if and when you change jobs.
- Bank raises and bonuses. The easiest way to boost your 403(b) account balance is to increase your contributions every time you get a raise. Since these contributions come directly out of your payroll, you likely won’t even miss the extra money. Do the same with bonuses.
- Pay down debt. If you carry debt, try to eliminate those balances to free up money in your budget for retirement savings.
- Invest strategically. Once you have money in your account, help it grow by selecting funds that have low fees and the right level of risk. Some companies provide employees with a free consultation with a financial planner or other investment tools. Check with your human resources office to see what might be available to you.
The maximum 403(b) for employees over 50 is $30,500 in 2024. Combined with the allowed employer contributions, the maximum is $76,500.
If someone has both a 401(k) and a 403(b) retirement account, they are limited to $23,000 (or $30,500 if 50 or older) in total contributions across both plans. The contribution limit applies to the person, not the individual plan.
Neither a 403(b) nor a 401(k) is necessarily better than the other. In many ways, the two plans are identical. The key differences are the types of employers offering them. 401(k) plans are available to workers at for-profit companies, while 403(b) plans are offered by nonprofit organizations, churches and schools.
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
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