Retirement Topics - 403(b) Contribution Limits
Generally, contributions to an employee’s 403(b) account are limited to the lesser of:
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The elective deferral limit
Several contribution limits apply to a 403(b) plan. A plan that includes both employer contributions and employee elective deferrals is subject to both the elective deferral limit, and the limit on annual additions. For 2012 and 2013, the total of employer and employee contributions (including the 15-year catch-up discussed below) cannot exceed the lesser of $50,000 for 2012 and $51,000 for 2013 or 100% of includible compensation, plus any age 50 catch-up contributions.
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:
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100% of the employee’s includible compensation for his or her most recent year of service.
The limit on elective deferrals, the most that can be contributed to a 403(b) account through employee elective deferrals by means of a salary reduction agreement is $17,000 in 2012 and $17,500 in 2013.
If permitted by the 403(b) plan, an employee that 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), his or her 403(b) elective deferral limit is increased by the lesser of:
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$3,000,
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$15,000, reduced by the amount of additional elective deferrals made in prior years because of this rule, or
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$5,000 times the number of the employee’s years of service for the organization, minus the total elective deferrals made for earlier years.
If an employee qualifies for the 15-year rule, his or her elective deferrals under this limit can be as high as $20,000 for 2012 and $20,500 for 2013.
If permitted by the 403(b) plan, participants who are age 50 or over at the end of the calendar year can also make Catch-up employee elective contributions of $5,500 in 2012 and 2013 beyond the basic limit on elective deferrals.
For 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 2012. The maximum employee and employer contributions to the XYZ 403(b) plan for 2012 for Pat would be $55,500:
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Pat may have elective deferrals to the 403(b) plan totaling $20,000 ($17,000 plus $3,000 15 years of service catch-up)
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Employer contribution of $30,000, bringing the total employee and employer contributions to $50,000, the annual additions limit.
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Pat may also defer an additional $5,500 age 50 catch-up contribution for 2012.
Participation in a qualified plan. Employees who participated in a 403(b) plan and a qualified plan must combine contributions made to their 403(b) accounts with contributions made to qualified plans, SEPs and SIMPLE IRAs of all corporations, partnerships and sole proprietorships in which they have more than 50% control.
Generally, includible compensation for an employee’s most recent year of service is the amount of taxable wages and benefits the employee received from the 403(b) employer during his or her most recent year of service.
An employee’s most recent year of service is his or her last full year of service, ending on the last day of the employee’s tax year that he or she worked for the 403(b) employer.
Additional Resources:
Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain Tax-Exempt Organizations
Publication 4482, 403(b) Tax-Sheltered Annuity for Participant
