If you work at a non-profit organization or a public school, you may have a 403(b) plan. Similar to 401(k) plans, 403(b)s are employer-sponsored plans that allow employees to make contributions for retirement in a tax-advantaged way. They also allow catch-up contributions beyond what 401(k)s permit, letting long-tenured employees save even more.

What are the 403(b) contribution limits for 2022?

The most an employee under 50 can contribute to their employer-sponsored retirement accounts, including a 403(b), in 2022 is $20,500. Those over age 50 can contribute $6,500 more as a catch-up contribution, for an annual total of $27,000.

Like other retirement accounts, 403(b)s have limits set by the IRS on how much an individual can contribute to it each year. This is partly because contributions to a traditional 403(b) plan are tax-deferred and lower the employee’s taxable income, so the IRS only collects taxes when the money is withdrawn.

Some qualifying organizations may have an additional contribution limit for their 403(b)s: An employee who’s worked at the organization at least 15 years can contribute an additional $3,000 in a year. If using both the age and service catch-up contribution, a 51-year-old who has worked at the organization for 16 years could contribute up to $30,000 in their 403(b) in 2022.

In some cases, an employer will also contribute to an individual’s 403(b). The total limit for contributions including both employee and employer contributions is $61,000 for 2022.

Contribution limits can change every year, so investors need to be aware of the limits each year. Saving more than the maximum amount may trigger a penalty. 

Traditional vs. Roth 403(b) contribution limits

Just like other types of retirement plans, there are both traditional and Roth 403(b) plans. The difference between the two comes down to when taxes must be paid. 

• Traditional 403(b).

  This 403(b) is funded with pretax dollars from the employee’s paycheck—meaning the funds come out before taxes are withheld. Contributing to a traditional 403(b) lowers an employee’s current taxable income. Regular income taxes are due on withdrawals after the employee retires. 

• Roth 403(b).

  This plan is funded with after-tax dollars. This means that individuals pay taxes on their income, and then contribute to the 403(b). No income taxes are paid on withdrawals.

An employee could have one or both accounts depending on what they prefer and what their employer offers. In the case of having both accounts, the contribution limit across the two accounts can’t exceed $20,500 in 2022.

403(b) contribution limits historically 

The first year a limit was in place was 1987, after the Tax Reform Act of 1986 introduced the concept of contribution limits. Then, the most an employee could defer from their paycheck to a retirement plan was $9,500. The Act also introduced the concept of elective deferrals, which allow money to be automatically deducted from an employee’s paycheck to put into an employer-sponsored retirement plan.

Since then, the IRS has steadily increased the contribution limit to keep up with the rising cost of living, generally by $500 to $1,000 each year. Even though that’s been the trend, it’s not guaranteed that the limit will change every year. 

403(b) contribution limits 2022 versus 2021

In 2021 employees could save up to $19,500 in a 403(b), $1,000 less than the current contribution limit. The total contribution limit, which includes employer contributions, for 2021 was $58,000, $3,000 less than that in 2022.  

What are catch-up contributions and how do they work with 403(b) plans?

Some employees who are older or who have worked at the organization for a long time can make extra contributions on top of the regular employee elective deferrals. These are known as catch-up contributions. 

Catch-up contributions for those 50 and older

Like other retirement accounts, 403(b) plans allow for a $6,500 catch-up contribution for employees aged 50 and older. This catch-up contribution is meant to help those who are closer to retirement save even more. Someone who is 50 or older can save as much as $27,000 in their 403(b) in 2022.

Catch-up contributions for employees of 15 years and more

403(b) plans have a unique catch-up contribution based on years of service. An employee who has worked at the same organization for 15 years or more can contribute up to an extra $3,000 per year, with a lifetime maximum of $15,000. 

Even though not all 403(b) plans offer this particular catch-up contribution, it is the only employer-sponsored retirement plan that can offer this.

How does someone determine their contribution limit for a 403(b) plan?

If an individual is seeking to max out their 403(b) contributions, here are questions to ask to determine their qualifying contribution limit:

• Are they making contributions to other retirement plans?

  An employee can have multiple retirement accounts, such as both a 403(b) and a Solo 401(k), or a 403(b) and a Roth 403(b). If they do, they have to be sure to not exceed the elective deferral limit for the year across all their accounts.

• Does the 403(b) plan permit the age 50 catch-up contribution?

  While the IRS allowed a catch-up contribution of $6,500 in 2022, not all plans permit it. An employee who’s 50 and older can review their plan’s rules or contact their employer or plan administrator to determine if this contribution is allowed for them. 

• Does the 403(b) plan allow for the catch-up contribution for 15 years of service?

  Long-tenured employees can ask the plan administrator or employer about this feature. If the plan permits it, an employee can contribute an additional $3,000 to their 403(b) as of 2022.

As an example, a public school employee can contribute the elective deferral of $20,500 to their 403(b). If they are age 50 or older and their plan allows for it, they can contribute an additional $6,500 catch-up contribution. And if they’ve worked at a qualifying organization for at least 15 years, if their plan allows for it, and if they’ve not fully taken advantage of this catch-up contribution, they can contribute another $3,000. That’s a total employee contribution limit of $30,000 in 2022.

If an employer makes contributions to this account, the most they could contribute is an additional $31,000, for total employer and employee contributions of $61,000 into this 403(b) as of 2022. 

What if your contributions exceeded the limit?

It’s important to remember that the contribution limits in retirement accounts apply to the individual investor and not each plan. Therefore, if an employee works two jobs and contributes to two plans, they cannot exceed the IRS-set contribution limit between the plans. If this occurs, the employee needs to notify the plan administrator. The excess amount will count as income and taxes must be paid at the worker’s regular tax rate. 

The bottom line

The annual contribution limit in retirement accounts may be a lofty goal for many to save when juggling life’s other expenses. Workers at certain non-profit organizations can refer to the 403(b) contribution limits, which usually change annually, to maximize their retirement savings. Utilizing the 403(b)’s unique catch-up contribution can also allow an investor to increase their savings, building up a bigger retirement nest egg.