A 403(b) plan is a tax-advantaged retirement savings plan designed for employees of certain tax-exempt organizations, such as public schools, colleges, universities, hospitals, and religious organizations. The plan allows eligible employees to save for retirement by making pre-tax contributions, reducing their taxable income and providing tax-deferred growth on their investments.
However, like all similar retirement plans (401k or IRA), there are contribution limits on how much you can contribute each year. Here are the limits for 2023 and a basic guide on how 403b contribution limits work.
2023 403(b) Contribution Limits
The 403b contribution limits for 2023 are:
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Employee Maximum Elective Deferral |
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Employee Recovery Contribution (if over 50) |
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Combined Employee and Employer Contribution |
This means that for savers under age 50, you can defer $22,500 per year, or a combined total of $66,000. If you’re over age 50, you can save $30,000 per year or a combined limit of $73,500.
Prior Year Contribution Limits
If you’re looking for a reference to last year’s limits, here you go:
2022 403b Contribution Limits
This year was the first year that inflation actually pushed up the contribution limits.
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Employee Maximum Elective Deferral |
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Employee Recovery Contribution (if over 50) |
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|
Combined Employee and Employer Contribution |
2021 403b Contribution Limits
|
Employee Maximum Elective Deferral |
|
|
Employee Recovery Contribution (if over 50) |
|
|
Combined Employee and Employer Contribution |
2020 403b Contribution Limits
|
Employee Maximum Elective Deferral |
|
|
Employee Recovery Contribution (if over 50) |
|
|
Combined Employee and Employer Contribution |
Understanding 403(b) contribution limits
There are three main types of contributions made to a 403b plan:
- Elective Employee Deferrals: The employee chooses to contribute a portion of their salary to the plan.
- Employer contributions: The employer may choose to contribute to the employee’s account, usually through a matching program.
- Non-elective contributions: These are contributions made by the employer on behalf of the worker, regardless of whether the worker contributes.
Employee Elective Deferrals
In 2023, the maximum amount an employee can contribute to their 403b plan through elective deferrals is $22,500. This limit applies to all employees, regardless of age or years of service.
employer contributions
There is no specific limit on employer contributions to a 403b plan. However, the total combined contributions, including employee elective deferrals and employer contributions, are subject to a limit. In 2023, that limit is $66,000 for employees under age 50 and $73,500 for employees age 50 and older.
Total Combined Contributions
Total combined contributions to a 403b plan in 2023 cannot exceed the lesser of:
- 100% of the employee’s inclusive compensation for the year, or
- $66,000 (subject to cost of living adjustments).
This limit includes employee elective deferrals, employer contributions, and non-elective contributions.
Recovery Contributions for People Age 50 and Older
Employees age 50 and older are eligible to make additional catch-up contributions to their 403b plan. In 2023, the catch-up contribution limit is $7,500. This means that an employee age 50 or older can contribute a total of $30,000 through elective deferrals ($22,500 + $7,500).
Factors Affecting 403(b) Contribution Limits
There are other factors that affect 403b contribution limits, some of which are unique to 403b plans.
Employee age
As mentioned above, employees age 50 and older can make additional catch-up contributions, which increases your overall contribution limit. In 2023, this age update contribution is $7,500.
Years of service
Certain employees with 15 or more years of service in a qualified organization may be eligible for an increased contribution limit. This is unique to 403b plans.
The additional amount is up to $3,000 per year, for a maximum lifetime increase of $15,000. This is subject to specific plan provisions, so employees should refer to their plan documents for eligibility and rules.
The exact amount you can contribute may be reduced based on your past contributions to your employer’s plans. You should check with your plan before taking advantage of this option.
Compensation
The maximum contribution limit is based on the employee’s inclusive compensation. Inclusive compensation refers to the total taxable income an employee receives from their employer, which is used to determine the maximum allowable contribution. You cannot contribute more than 100% of your includable compensation.
Coordination with Other Retirement Plans
Employees who participate in multiple retirement plans, such as 403b and 401k, should be aware of the combined contribution limits. The total amount contributed across all plans cannot exceed the individual limits for each type of plan.
How to Maximize Your 403(b) Contributions
Maxing out your 403b is a great way to build wealth in the long run. However, depending on your skill, it might be challenging to do at first. Here are some tips for trying to maximize your 403b contributions.
plan the future
To get the most out of your 403b plan, it’s essential to plan ahead and assess your financial goals. Determine how much you can contribute and adjust your contributions as needed to meet your retirement savings goals.
Take Advantage of Employer Matching
If your employer offers a match, try to contribute at least enough to receive the full match. This is essentially free money and can significantly increase your retirement savings.
Review your contribution limits annually
Contribution limits may change due to cost-of-living adjustments announced by the IRS. In fact, in recent years, the contribution limits have been increased substantially. Review your contribution limits each year and adjust your contributions accordingly to maximize your savings potential.
final thoughts
Understanding and maximizing your 403b contribution limits is crucial to a successful retirement savings plan. By staying informed about the various factors that affect your contribution limits and taking advantage of opportunities to increase your savings, you can build a solid foundation for a comfortable retirement.
Frequent questions
Here are some of the most frequently asked questions about 403(b) plans and contribution limits.
What is the 403b contribution limit for 2023?
The employee elective deferral limit for 2023 is $22,500. For employees age 50 and over, they can make an additional catch-up contribution of $7,500. The overall combined limit is $66,000.
Can I contribute to both a 401k plan and a 403b plan?
Yes, you can contribute to both plans, but the combined contributions cannot exceed the individual limits for each type of plan.
Do employer contributions count toward the 403b contribution limit?
Employer contributions do not count toward the employee’s elective deferral limit, but are included in the total combined contribution limit.
How do catch-up contributions work for employees age 50 and over?
Employees age 50 and older can contribute an additional $7,500 in catch-up contributions to their 403b plan in 2023, bringing their total elective deferral limit to $30,000.
Can I increase my 403b contribution limit if I have 15 years of service?
Certain employees with 15 or more years of service in a qualified organization may be eligible for an increased contribution limit of up to $3,000 per year, for a maximum lifetime increase of $15,000.