You may put away as much as $20,500 by using a 403(b) plan.
A 403(b) is a retirement plan with a tax-sheltered annuity or thrift savings plan offered by most public school districts and a few charitable organizations. It is somewhat analogous to a 401(k) plan. You are eligible to contribute as an employee. Your employer is eligible to match the contribution you make, and you can have money deducted straight from your paycheck and redirected into your plan.
For the 2022 tax year, the maximum amount of money you can contribute through an elective deferral to a 403(b) plan is $20,500. This represents an increase from $19,500 in 2021. If you are above the age of 50, you are eligible to make a "catch-up" contribution of an additional $6,500 to your retirement account. The annual contribution that an employee makes can have it matched by the employer.
You could make extra contributions of up to $3,000 per year for up to five years if you have worked for a qualified organization for 15 years or more, provided that you meet specific qualifications. These contributions can be made for a maximum of five years.
The maximum amount you can contribute through matching funds and elective deferrals combined is increased to $61,000 for the 2022 tax year, up from $58,000 in the 2021 tax year. These restrictions are indexed for inflation, making it reasonable to anticipate that they will occasionally increase to keep up with the economy.
Increases in contribution limits over time for 403(b) plans
Putting everything into historical context may be easier with the help of this chart. You'll see that the restrictions have been gradually raised to keep up with the pace of inflation and the economy.
403(b) Contribution Limits by Year
|
Year
|
Elective Salary Deferral Limit
|
Catch-up Contributions if Age 50 or Older
|
Total Possible Employee Contribution Limit
|
Total Combined Limit for All Sources
|
Source
|
| 2022 |
$20,500 |
$6,500 |
$27,000 |
$61,000 |
2022 Limitations |
| 2021 |
$19,500 |
$6,500 |
$26,000 |
$58,000 |
2021 Limitations and Income Ranges |
| 2020 |
$19,500 |
$6,500 |
$26,000 |
$57,000 |
IRS Limits |
| 2019 |
$19,000 |
$6,000 |
$25,000 |
$56,000 |
IRS Limits |
| 2018 |
$18,500 |
$6,000 |
$24,500 |
$55,000 |
IRS Limits |
| 2017 |
$18,000 |
$6,000 |
$24,000 |
$54,000 |
IR-2016-141 |
| 2016 |
$18,000 |
$6,000 |
$24,000 |
$53,000 |
IR-2015-118 |
| 2015 |
$18,000 |
$6,000 |
$24,000 |
$53,000 |
IR-2014-99 |
| 2014 |
$17,500 |
$5,500 |
$23,000 |
$52,000 |
IR-2013-86 |
| 2013 |
$17,500 |
$5,500 |
$23,000 |
$51,000 |
IR-2012-77 |
| 2012 |
$17,000 |
$5,500 |
$22,500 |
$50,000 |
IR-2011-103 |
| 2011 |
$16,500 |
$5,500 |
$22,000 |
$49,000 |
IR-2010-108 |
| 2010 |
$16,500 |
$5,500 |
$22,000 |
$49,000 |
IR-2009-94 |
| 2009 |
$16,500 |
$5,500 |
$22,000 |
$49,000 |
IR-2008-118 |
For 2022, the maximum amount you can defer from elective salary was raised from $19,500 to $20,500. The catch-up limit for employees 50 years of age and above has been maintained at $6,500, which results in a maximum cumulative contribution of $27,000 for employees who are at least 50 years old.
Restrictions and limitations to apply to two plans
These restrictions apply to any 401(k), and 403(b) accounts that a taxpayer may hold throughout the year. If you have two or more jobs or switch jobs in the middle of the year, you may find that you need to devote some time to keeping track of your 401(k) and 403(b) plan contributions. This is necessary to ensure that you do not contribute more than the maximum amount permitted to these plans. You may be subject to hefty annual penalties if you fail to keep track of these restrictions across accounts.
If you notice that you have contributed too much to either of these accounts, you have until the deadline for filing your taxes the following year to fix the mistake by withdrawing the excess amounts. If you're unsure whether or not you've contributed too much, consult a financial professional.
Some suggestions for going beyond your boundaries
Suppose you intend to contribute the maximum amount permitted. You can accomplish this by taking the entire amount of your annual contribution and dividing it by the number of pay periods throughout the year. You may find it most convenient to divide the annual maximum into equal dollar amounts and apply it to each pay period. Due to this, you will be able to set aside the same amount of money every two weeks. In addition to that, it will distribute the cost of your payments to your retirement assets so that they are spread out evenly.
The management of elective deferrals
The employer's matching contributions are handled distinctly from the employee's elective deferrals. Each one is subject to its regulations and taxation. You can put your salary deferral contributions into either a tax-deferred traditional 403(b) account or a post-tax Roth 403(b) account, or you can put them into a combination of traditional and Roth funds. However, the cumulative amount of all salary deferrals cannot be more than the annual maximum.
The section of your 403(b) plan that allows you to defer taxes is where your employer will always contribute matching funds. The current maximum amount that can be contributed by both you and your employer in the form of matching contributions combined with your salary deferral plan is limited to $61,000. Compared to the maximum of $58,000 in effect in 2021, this amount increased by $3,000.
Frequently Asked Questions (FAQs)
What is the eligibility to participate in a 403(b) retirement plan?
Employees of most public school districts and those working for charitable organizations, including hospitals, health service agencies, and churches, are eligible to participate in a 403(b) plan.
Is it possible to have both a 401(k) and a 403(b)?
You might be allowed to participate in a 401(k) and a 403(b) plan at the same time, depending on the company that you work for (b). You will need to ensure that your combined annual contributions to both plans do not exceed the maximum allowable amount.
