Public school teachers, church staff, not-for-profit hospital workers and other employees of nonprofits are eligible to sock away thousands of dollars each year in a 403(b) retirement plan at work.
403(b) Contribution Limits for 2018
The maximum amount an employee can elect to contribute out of salary to a 403(b) retirement plan for 2018 is $18,500, up from $18,000 in 2017. If you’re 50 or older, you can contribute an additional $6,000 as a catch-up contribution for 2018, bringing your contribution total to $24,500.
As with a 401(k), money going into a 403(b) through payroll deductions hasn’t yet been taxed. The contributions and earnings grow tax-free until you withdraw them—usually in retirement. You can pull money out of the account without a 10% penalty if you’re at least 59½ (or 55 if you’ve left the job). Withdrawals are subject to regular income tax.
“It’s a vehicle meant for saving for retirement and to cover pension shortfalls,” says Daniel Otter, founder of 403bwise.com, an education and advocacy website about 403(b) plans.
403(b) Catch-up Contributions and Employer Contributions
Employer contributions to a 403(b) made on top of employee contributions can boost retirement savings significantly. An employer can contribute up to an additional $36,500 to a worker’s account in 2018, but Otter says this is a perk generally offered to employees at public colleges. Very few public K-12 school systems offer any type of 403(b) match to workers.
Some employers also permit both younger and older workers to make catch-up contributions under the so-called 15-year service rule. Under this provision, if you have 15 or more years of service at the same employer, you can contribute an additional $3,000 a year if you have not maxed out your 403(b) contributions in previous years, Otter says. For example, a 45-year old teacher with 15 years on the job could contribute as much as $21,500 in 2018 ($18,500 for the annual contribution plus the $3,000 catch-up contribution). The 15-year service catch-up contribution, however, has a $15,000 lifetime limit.
Again, most K-12 school districts simply don’t offer this 15-year service rule, says Scott Dauenhauer, a certified financial planner and owner of Meridian Wealth Management.
If you need more help in determining your maximum contribution limit, check out Fidelity’s 403(b) contribution calculator.