403(b) Plan: Contributions
A 403(b) account may receive the following types of contributions:
- Elective-deferral contributions, which are deducted from employee paychecks on a pretax basis
- Employer contributions, which can be fixed or discretionary
- After-tax contributions, which are deducted from employee paychecks on an after-tax basis
- Roth 403(b) contributions
- A combination of any of the above contribution types listed above
Eligible Compensation for Contributions
Employees' compensation is based on W-2 wages. An employee's compensation in excess of $255,000 may not be considered for purposes of making a 403(b) contribution.
Designated Roth Plans
Employers may elect to include a designated Roth account (Roth 403(b) account) as a feature of the 403(b) plan. This allows employees to make Roth 403(b) contributions which can grow tax-free. (For more insight, read Roth 401(k), 403(b): Which Is Right For You?)
Employer Contribution Limit
An employee may receive contributions of up to $51,000, or 100% of his or her compensation, whichever is less. This includes salary deferral contributions and employer contributions. For the purpose of determining an employee's contribution limit, any employee's compensation in excess of $255,000, which is the compensation cap, is not considered.
Salary Deferral Contribution Limits
An employee may elect to defer 100% of compensation up to a set dollar limit for that year (see chart below):
|Tax Year||Elective-Deferral Contribution Limit|
Eligible employees who are at least age 50 by the end of the year may make additional contributions, which are called catch-up contributions. The catch-up contribution limits for different tax years are as follows:
|Tax Year||Catch-Up Contribution Limit|
2.$15,000, reduced by the sum of:
- The additional pretax elective deferrals made in prior years because of this rule, plus
- The aggregate amount of designated Roth contributions permitted for prior tax years because of this rule, or
Employees should check with their employers to determine if they meet this 15-year requirement.
Employers may include an automatic enrollment feature in their 403(b) plans, which allows them to set up automatic contributions for their employees. If the plan has a Roth 403(b) feature, the employer must indicate whether the automatic enrollment feature applies to the traditional 403(b) salary deferrals, Roth salary deferrals, or both.
The investment options for a 403(b) account are determined by the 403(b) product:
- A 403(b) annuity contract must invest in an annuity product provided through an insurance company. The product may be a variable or fixed annuity contract.
- A custodial account, which is provided through a retirement account custodian, must invest in regulated investment companies, such as mutual funds.
- A retirement income account may invest in vehicles such as annuities and publicly traded securities. Only churches and church-related organizations may establish retirement income accounts.
403(b) Plan: Distributions