Generally, contributions to an employee’s 403(b) account are limited to the lesser of:
- the limit on annual additions, or
- the elective deferral limit
Limit on employee elective salary deferrals
The limit on elective deferrals - the most an employee can contribute to a 403(b) account out of salary - is $19,500 in 2020 ($19,000 in 2019). Employees who are age 50 or over at the end of the calendar year can also make catch-up contributions of $6,500 in 2020 ( $6,000 in 2015 - 2019) beyond the basic limit on elective deferrals.
Limit on annual additions
The limit on annual additions (the combination of all employer contributions and employee elective deferrals to all 403(b) accounts) generally is the lesser of:
- $57,000 for 2020 ($56,000 for 2019), or
- 100% of includible compensation for the employee's most recent year of service.
- $57,000 for 2020 ($56,000 for 2019), or
Generally, includible compensation is the amount of taxable wages and benefits the employee received in the employee's most recent full year of service. If your 403(b) plan doesn’t limit the total employer and employee contributions to the annual limits, find out how to correct this mistake.
Catch-ups for employees with 15-years of service
If permitted by the 403(b) plan, an employee who has at least 15 years of service with a public school system, hospital, home health service agency, health and welfare service agency, church, or convention or association of churches (or associated organization), has a 403(b) elective deferral limit that is increased by the lesser of:
- $15,000, reduced by the amount of additional elective deferrals made in prior years because of this rule, or
- $5,000 times the number of the employee’s years of service for the organization, minus the total elective deferrals made for earlier years.
An employee who qualifies for the 15-year rule can have an elective deferral limit as high as $22,000 for 2019. For plans that offer “15-years of service catch-up” contributions, if an employee making these contributions doesn’t have the required 15 years of full-time service with the same employer, find out how to correct this mistake.
Catch-ups for employees age 50 or over
If permitted by the 403(b) plan, employees who are age 50 or over at the end of the calendar year can also make catch-up contributions of $6,500 in 2020 ($6,000 in 2015 - 2019) beyond the basic limit on elective deferrals. If the 403(b) plan doesn’t have the age 50 catch-up and an employee made deferrals over the 402(g) limit (or the 402(g) limit adjusted for a 15-year catch-up), find out how to correct this mistake.
If both catch-up provisions apply
While the age 50 catch-up is subject to an annual limit, the 15-year catch-up is subject to a use test, lifetime limit and an annual limit. When both catch-up opportunities are available, the law requires deferrals exceeding the standard limit ($19,500 in 2020 and $19,000 in 2019) to be first applied to the 15-year catch-up (to the extent permitted), and then to the age 50 catch-up.
Example: Assume Pat, age 50, has worked as a teacher in the XYZ School District for 15 years; is eligible for the 15 years of service catch-up; and has eligible compensation of $70,000 for 2019. The maximum employee and employer contributions to the XYZ 403(b) plan for 2019 for Pat would be $62,000:
Pat may have elective deferrals to the 403(b) plan totaling $22,000 ($19,000 plus $3,000 15 years of service catch-up)
Employer contribution of $34,000, bringing the total employee and employer contributions to $56,000, the annual additions limit.
Pat may also defer an additional $6,000 age 50 catch-up contribution in 2019.
Example: Now assume that Pat only deferred $22,500 of his salary under the 403(b) plan. The plan provides both the 15-year and age 50 catch-up deferral opportunities. Under the use test, Pat is eligible for a 15-year catch-up of $3,000. Of the total $22,500 deferred for 2019, the maximum standard deferral of $19,000 is first applied, followed by application of the 15-year catch-up deferral of $3,000, and finally application of the remaining $500 to the age 50 catch-up deferral.
Employees who also participate in another plan
Employees must combine contributions made to their 403(b) accounts with contributions made to all other plans in which they participate (other than 457 plans): 401(k)s and other qualified plans, and SIMPLE IRAs. The employee's total elective deferrals to all of these plans combined cannot exceed the annual deferral limit ($19,500 in 2020 and $19,000 in 2019). See How Much Salary Can You Defer if You're Eligible for More Than One Retirement Plan.