Retirement Plans FAQs regarding 403(b) Tax-Sheltered Annuity Plans


A 403(b) plan (also called a tax-sheltered annuity or TSA plan) is a retirement plan offered by public schools and certain 501(c)(3) tax-exempt organizations.

These frequently asked questions and answers provide general information and should not be cited as authority. 


A 403(b) plan, also known as a tax-sheltered annuity plan, is a retirement plan for certain employees of public schools, employees of certain Code Section 501(c)(3) tax-exempt organizations and certain ministers. A 403(b) plan allows employees to contribute some of their salary to the plan. The employer may also contribute to the plan for employees.

Generally, public schools, Code Section 501(c)(3) tax-exempt organizations or churches can set up 403(b) plans.

If your organization isn’t eligible to sponsor a 403(b) plan, find out how to correct this mistake.

  • Eligible employees of Code Section 501(c)(3) tax-exempt organizations;
  • Eligible employees of public school systems. A public school system is defined in Code Section 170(b)(1)(A)(ii) as an education organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly conducted. Included in this category are employees of:
    • Public schools
    • State colleges
    • Universities
  • Eligible employees of churches;
  • Employees of public school systems organized by Indian tribal governments;
  • Ministers employed by Code Section 501(c)(3) organizations;
  • Self-employed ministers, treated as employed by a tax-exempt organization that is a qualified employer; and
  • Ministers (chaplains) who meet both the following requirements:
    1. They are employed by organizations that are not Code Section 501(c)(3) tax-exempt organizations, and
    2. They function as ministers in their day-to-day professional responsibilities with their employers.

If you’ve excluded eligible employees from your 403(b) plan, find out how to correct this mistake.


There are significant tax advantages for participants in a 403(b), including pre-tax contributions to a 403(b) plan and earnings on these amounts are not taxed until they are distributed from the plan.

The terms of the employer’s 403(b) plan govern when an employee may enroll. However, a 403(b) plan is generally required to allow all eligible employees to participate in the plan as of their employment commencement date (the universal availability rule). Employees should check with their employer to determine how to enroll in the plan.

If you haven’t given eligible employees the opportunity to participate in your 403(b) when they should have, find out how to correct this mistake.

Yes, a 403(b) plan can automatically enroll employees if the plan allows employees to contribute to the plan, the plan’s provisions contain an automatic contribution arrangement and the employee does not opt-out (affirmatively elect not to participate) of the plan’s automatic enrollment.


A 403(b) plan may allow:

  • Elective deferrals - employee contributions made under a salary reduction agreement. The agreement allows an employer to withhold money from an employee’s salary and deposit it into a 403(b) account.
  • Nonelective employer contributions - contributions other than those made under a salary reduction agreement that include matching contributions, discretionary contributions and certain mandatory contributions made by the employer. The employee pays income tax on these contributions only when they are withdrawn.
  • After-tax contributions - contributions (otherwise referred to as voluntary contributions that are not designated Roth contributions) made by an employee, which are reported as compensation in the year contributed and included in the employee’s gross income for income tax purposes.
  • Designated Roth contributions - elective deferrals that the employee elects to include in gross income. The plan must keep separate accounting records for all contributions, gains and losses in the designated Roth account.

A 403(b) plan must generally allow all employees to make elective deferrals to the plan. Under the universal availability rule, if an employer permits one employee to defer salary by contributing it to a 403(b) plan, the employer must extend this offer to all employees of the organization. However, the following exception describes limited situations in which employees may be excluded:

  • employees who will contribute $200 or less annually;
  • employees who participate in a 401(k) or 457(b) plan or in another 403(b) plan of the employer;
  • nonresident aliens;
  • employees who normally work less than 20 hours per week; and
  • students performing services described in Code Section 3121(b)(10).

The maximum amount of elective deferrals an employee can contribute annually to a 403(b) is generally the lesser of:

However, this general limit is reduced by the amount of elective deferrals an employee makes to:

If the plan allows:

  • an employee who has worked for a qualified organization for 15 or more years may, if he or she meets certain requirements, be able to make additional contributions of up to $3,000 for up to 5 years (see 15-year rule in Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans); and
  • an employee who is age 50 or older may make an additional catch-up contribution of $7,500 in 2023, $6,500 in 2022, in 2021 and in 2020 ($6,000 in 2015-2019, subject to annual cost-of-living increases), reduced by the amount of catch-up contributions made to other plans.

If any participant’s elective deferrals exceeded the maximum amount for a year, find out how to correct this mistake.

No. An employer may, but is not required to, contribute to the 403(b) plan for employees.

The maximum combined amount both the employer and the employee can contribute annually to the plan is generally the lesser of:

  • $66,000 for 2023 ($61,000 for 2022, $58,000 for 2021, $57,000 for 2020 and $56,000 for 2019) subject to annual cost-of-living increases); or
  • an employee’s includible compensation for his or her most recent year of service.

Employees meeting certain requirements and plan participants may be eligible to make additional contributions.

If any participant’s total contributions exceeded the annual limit, find out how you can correct this mistake.

Yes, if the plan allows, an employer can make nonelective contributions to a former employee’s account for 5 years after the date of severance, up to the annual limits (total contributions to an employee's account should not exceed $66,000 for 2023, ($61,000 for 2022, $58,000 for 2021, $57,000 for 2020 and $56,000 for 2019, subject to annual cost-of-living increases). However, no portion of these contributions can come from money otherwise payable to the former employee by the employer and must cease at the death of the former employee.

The 403(b) plan sponsor must send elective deferrals to the vendor within an administratively feasible period (generally, within 15 business days following the month in which these amounts would have been paid to an employee).

However, a 403(b) plan subject to the Employer Retirement Security Income Act of 1974 (ERISA) should review the Department of Labor’s rules for a potentially shorter time-frame for forwarding elective deferrals to the vendor.

Plan Investments

Assets in a 403(b) plan can be placed in any of the following investment types:

  • an annuity contract provided through an insurance company;
  • a custodial account invested in mutual funds; or
  • a retirement income account set up for church employees.

Contract exchanges with a non-payroll slot vendor are permitted if:

  • the plan permits the exchange;
  • the accumulated benefit after the exchange is at least the same as before the exchange;
  • the employer and the non-payroll slot vendor agree to share information regarding employment and the plan’s terms;
  • any pre-exchange benefit restrictions are maintained after the exchange; and
  • the vendor complies with the plan’s terms.

Plan-to-plan transfers between 403(b) plans are permitted if:

  • the terms of the transferring and receiving plans allow these transfers;
  • the transferred assets belong to a current or former employee of the receiving plan’s sponsor;
  • the accumulated benefit after the exchange is at least the same as before the exchange; and
  • any benefit restrictions of the transferring plan are maintained by the receiving plan.

Rev. Proc. 2007-71 contains additional details on contract exchange and transfer rules.
Only eligible rollover distributions can be transferred between a 403(b) plan and a qualified plan (for example, a 401(k) plan or a 457 plan).

403(b) plans subject to the Employer Retirement Income Security Act of 1974 (ERISA) should also consult the Department of Labor’s rules for additional conditions on in-service transfers.

Loans and Distributions

Yes, a 403(b) plan may, but is not required to, allow loans. If permitted by the plan, employees may obtain a loan to the extent and in the manner allowed by the plan.

If any participant took a loan from the 403(b) plan and it doesn’t meet the loan rules, or if the participant doesn’t repay the loan, find out how to correct this mistake.

A 403(b) plan may, but is not required to, allow hardship distributions. If permitted by the plan, participants may obtain a hardship distribution to the extent and in the manner allowed by the plan.

If you didn’t obtain sufficient documentation ensuring that participant hardship distributions meet the definitions and requirements for hardship distributions, find out how to correct this mistake.

In addition to loans and hardship distributions, a 403(b) plan may allow employees to take money out of the plan when they:

  • reach age 59½;
  • have a severance from employment;
  • become disabled;
  • die; or
  • encounter a financial hardship.

Employees may also receive a qualified reservist distribution.

Eligible distributions may be rolled overPDF to another plan or an IRA.

The employee will have to pay taxes on any amount of the distribution that was not from designated Roth or after-tax contributions and may have to pay an additional 10% early distribution tax unless an exception to this tax applies.

403(b) plans may provide employees with a choice on how benefits will be paid. For example, an employee can choose to have benefits paid in a lump sum.

Certain distributions may be eligible for rolloverPDF to another plan or an IRA.

Written Plan Requirement

A 403(b) plan must be maintained under a written program which contains all the terms and conditions for eligibility, benefits, limitations, the form and timing of distributions and contracts available under the plan, and the party responsible for plan administration which satisfy Code Section 403(b).

The written plan requirement does not mean that the plan must be contained in a single document. For example, the plan can consist of multiple documents that contain the various plan provisions regarding salary reduction agreements, contracts that fund the plan, eligibility rules, how the plan will pay benefits and the nondiscrimination rules.

Church plans that do not contain any retirement income accounts are exempt from having a 403(b) written plan.

Yes. The following contracts are excluded:

  • contracts issued before December 31, 2004 to which contributions have ceased; and
  • contracts issued between January 1, 2005 and December 31, 2008:
    • that are no longer receiving contributions;
    • which the employer has made a good faith effort to include as part of the employer’s plan by collecting available information about the issuers; and
    • the employer has notified the issuers of the plan administrator’s name and contact information to coordinate information necessary to satisfy the requirements of Code Section 403(b).

The deadline for 403(b) plan sponsors to adopt new written plans or amend their existing written plans that were effective in 2009 was December 31, 2009. The IRS considers 403(b) plans as having timely adopted a written plan if the plan sponsor:

  • adopted or amended a written plan by December 31, 2009, intended to satisfy Section 403(b) and the 403(b) final regulations, making it effective January 1, 2009;
  • operated the plan during 2009 using a reasonable interpretation of the 403(b) final regulations; and
  • made its best effort to retroactively correct, by the end of 2009, any operational failure that happened in 2009 to conform to the written plan, based on the general principles of correction in the IRS Employee Plans Compliance Resolution System.

Yes. However, 403(b) plans did not have to amend their plan documents until after the commencement of the initial remedial amendment period described in Announcement 2009-89.

Existing 403(b) plans have a remedial amendment period retroactive to January 1, 2010, or the effective date of their plan, if later, to correct form defects in their plan documents retroactive to January 1, 2010 if the employer:

  • adopted a written plan document no later than December 31, 2009, and
  • timely adopts a pre-approved plan with a favorable opinion letter

Employers with existing 403(b) plans as of January 1, 2010, can rely that the form of their plan documents satisfy the 403(b) requirements if they retroactively correct plan defects during the plan’s remedial amendment period.

Reliance for employers who establish a 403(b) plan on or after January 1, 2010, is retroactive to the plan’s effective date if the employer timely adopts a pre-approved plan with a favorable opinion letter and corrects any form defects retroactive to the plan’s effective date.

Revenue Procedure 2019-39 provides a system of recurring remedial amendment periods for correcting form defects for both individually designed and pre-approved 403(b) plans.

For guidance on what may cause a 403(b) plan to be subject to ERISA, please consult the Department of Labor’s rules.

Coverage and Nondiscrimination

Generally, universal availability means that if an employer permits one employee to defer salary into a 403(b) plan, the employer must extend this offer to all employees, other than those whom the law allows to be excluded.

Universal availability also requires the plan to give meaningful notice to employees of their right to make elective deferrals. The notice must notify the employees of:

  • their right to make elective deferrals;
  • when to make an election; and
  • when and how often during the year they can change that election.

A 403(b) plan generally may not place conditions on an employee’s right to make elective deferrals. For example, the plan sponsor cannot require that an employee take out a certain level of health insurance before being allowed to make elective deferrals to the 403(b) plan.

If you haven’t permitted eligible employees to defer their salary into your 403(b) plan, find out how to correct this mistake.

A 403(b) plan may exclude certain employees from universal availability for elective deferrals:

  • Employees who normally work less than 20 hours per week (this does not necessarily mean all part-time employees);
  • Employees who will contribute $200 annually or less;
  • Employees who participate in a 401(k) or 457 plan, or in another 403(b) plan of the employer;
  • Non-resident aliens; and
  • Students performing services described in Section 3121(b)(10).

Yes, nongovernmental and non-Church 403(b) plans must satisfy the nondiscrimination requirements for both employer nonelective and matching contributions.

An employer’s nonelective contributions must satisfy all of the following nondiscrimination requirements in the same manner as a qualified plan under Code §401(a):

  • Code Section 401(a)(4) – relating to nondiscrimination in contributions and benefits;
  • Code Section 410(b) – relating to minimum coverage;
  • Code Section 401(a)(17) – limiting the amount of compensation that can be taken into account; and
  • Code Section 401(m) – relating to matching and after-tax employee contributions.

Termination of Plan

Generally, a terminating 403(b) plan must distribute all accumulated benefits to the participants and beneficiaries as soon as administratively feasible. Revenue Ruling 2011-7 provides examples of how to terminate a 403(b) retirement plan funded in different ways and explains when the terminating plan’s distributions are taxable. Revenue Ruling 2020-23 describes the actions a 403(b) plan funded through Section 403(b)(7) custodial accounts can take to properly terminate the plan.