1. 403(b) Plan: Introduction
  2. 403(b) Plan: Eligibility Requirements
  3. 403(b) Plan: Contributions
  4. 403(b) Plan: Distributions
  5. 403(b) Plan: Conclusion

By Denise Appleby

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

If an employee makes contributions to his or her traditional 403(b) and Roth 403(b) account in the same year, the aggregate contribution must not exceed the salary deferral limits.

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
2010 $16,500
2011 $16,500
2012 $17,000
2013 $17,500

Deferral contributions in excess of these limits are excess deferrals, which must be removed from the employee's 403(b) plan account within a certain time frame. Excess contributions require special administrative handling and will be assessed penalties if not removed within these time frames.

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
2010 $5,500
2011 $5,500
2012 $5,500
2013 $5,500

For employees who have accrued at least 15 years of service with an educational organization, hospital, home health service agency, health and welfare service agency, or church; the limit on salary deferral contributions is increased by the lesser of:

1.$3,000,

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

3.$5,000 times the number of years of service for the organization, minus the total elective deferrals made by the employer on the employee's behalf for earlier years.

Employees should check with their employers to determine if they meet this 15-year requirement.

Automatic Contributions
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.

Investment Options
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.

Generally, employees are allowed to select investments within the parameters stated above.


403(b) Plan: Distributions
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